If Plans Have Changed
I am building a home we still want to move into, but now it appears we may not be able to do so.
Will this be treated as an investment property for taxes if we decide to sell it when it is finished?
Thanks in advance.
As a short term investment, the tax rate on your sale profit will be the same as the tax rate on your other ordinary income.
I just assumed from your initial question tthat you have a pre-construction contract on a new home. The buider bought the land, is building the home according to some preset plans, and you have a contract to purchase when construction is complete.
If this is the case, then my original response stands.
If, instead, you have contracted with a builder to construct a home on land that you already owned using your design specs and you have significant control over the selection of and the quality of the materials to be used, then your holding period for the land will determine whether you get capital gains tax treatment when you sell. If you will have owned the land at least one year and one day before the sale, then capital gains tax treatment will apply.
There is no 14% tax bracket. The tax brackets are 10%, 15%, 25%, 28%, 33% and 35%,
Profit from property held one year or less is a short term capital gain and is taxed at the rate that corresponds to the tax bracket that income puts you in.
Profit from property held longer than one year is a long term capital gain. If you are in the 15% tax bracket or lower, then whatever capital gain keeps you in the 15% tax bracket will only be taxed at 5%. If you are in the 25% tax bracket or higher, then the long term capital gains tax rate is 15%.
So, the real answer to your question is NO. You never pay capital gains taxes at a rate that is higher than your ordinary income tax rate. The capital gains tax rate is always less than or equal to the tax rate that is applied to your other ordinary income
Thanks, NewKidinTown3! I really appreciate all your help!