Dividing A Double Lot.. What Is The Implication Of Capital Gain Tax?
We are currently rehabbing a property sits on a double lot (one tax parcel = one address) We bought this property in March of this year. When the rehabilitaion is done, we will subdivide the lot (create another tax parcel and address), lease the existing house with option to purchase, and build a house on a newly subdivided lot. We are planning to sell the new house, when the construction is completed.
Here is the question. When we sell the new house, are we paying short term capital gain or long term capital gain tax? Are we paying short term capital gain tax for improvement potion (building) of the profit? Are we still paying short term capital gain tax for land portion of the profit, since it was just divided?
Can somebody help me with this???
You are acting as a developer. In my lay opinion, your sales are dealer dispositions, and profit from the sale of these two properties is active income taxed at your marginal tax rate.
Neither long nor short term capital gains apply here, since you would not report these sales on Schedule D. In the absence of a separate business entity, report these activities on Schedule C and Schedule SE.
Perhaps someone in the developer forum has a better answer for you. Consult a professional tax advisor for specific details.
Thank you for your reply, Dave T. I think what you are saying is right. I need to call a CPA.
Thanks.