SpecHouse Cap Gain Tax
How would the gain from the sale of a spec house be taxed?
ex:
going in..
purchase land: 25k
Land & pre-construct House(construct loan & land purchase): net: 100k
going out (after 1 year from close on land)
sell Land & house: 150K
would the 50K (150k -100k) be considered ordinary income?
or would you be able to say
if current lots at the time of the sale of the completed house are selling for 50K.
25k Long-term cap gain on land(50k-25k)
25k Short-term gain on remainder
any advice on tax treatment for this type investment would be much appreciated..
thks
You are acting as a real estate developer. All your profit is ordinary income to your business. Capital gains tax treatment does not apply.
Even though your question on the taxable profit allocated to land is now academic, the profit on the sale allocated to the land is $12,500. Since the land value represents only 25% of your $100K cost basis, the amount of the final sale price allocated to the land is 25% of $150K, or $37,500.
If comparable undeveloped lots are selling for $50K, perhaps your sale price for the developed lot should be $200K.
Thanks for the info.
Sale price minus your actual costs equals your profit.
The interest you pay on your constuction financing is included in your costs, but the amount of your construction loan nothing to do with the profit calculations.
Okay, thanks!