How to do taxes if I am building a house, starting in 2021 and selling in 2022? Can I put all expenses for building the house after I am selling the house?

Forum|Forum|4 years ago
February 1, 2022
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TurboTax Self Employed Online

DaveF1006

It depends. You are building your house this year but are going to sell it next year. This is considered an investment sale in 2022. You will report this when you sell your house in 2022. You report nothing in 2021.

To give you a heads-up, your complete costs in building your house will be treated as a cost basis. The amount you sell your house will be proceeds. The difference between your proceeds and your cost basis is a capital gain.

To offer sound tax advice, I would consider waiting at least one year between the time you finish your house until the time you sell because of the nature of capital gain tax. Once complete, if you sell your house within one year, you are subject to short-term capital gains tax. However, if you wait longer than 1 year, you may be taxed at a more favorable long term capital gain rate.

Please review this Turbo Tax post for more details.

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cristiantonAuthor

Thanks for the quick response.

To be clear, I bought the land on 25 July 2021 and if I sell the house on 26 July 2022 I'll be subject to short-term capital gain, 15% or I have to keep the house after I am getting the last permit( occupancy) for one year to be on short-term?

Thanks a lot!

DianeW777

Yes, holding the property longer than one year will produce the special capital gain treatment which is as follows depending on your total income before the capital gain. This information does include the land and the house individually, or together if they are both held for more than one year.

A capital gain rate of 15% applies if your taxable income is more than $40,400 but less than or equal to $445,850 for single; more than $80,800 but less than or equal to $501,600 for married filing jointly or qualifying widow(er); more than $54,100 but less than or equal to $473,750 for head of household or more than $40,400 but less than or equal to $250,800 for married filing separately.
If your income is less (not including the gain) your rate could be 10%.
- Long term is a holding period of more than one year (one year plus one day) and receives capital gain tax treatment (0%, 10%, 15%, 20% depending on your regular rate of tax)
- Short term is a holding period of one year or less and receives ordinary gain tax treatment (your regular rate)