Home Sale Date of Acquisition, Holding Period, Potential Bifurcation

Forum|Forum|1 year ago
January 28, 2025
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I purchased a vacant lot in March 2024 for $600,000, and I have hired a general contractor to erect a new construction home, which I anticipate will cost $1,000,000 to erect. I anticipate that the home will be completed in August 2025 with a total cost to construct of $1,600,000. If I were to sell the property in September 2025 for $2,500,000, would I be able to structure the purchase contract to sell the land at a value of $1,500,000 and the home at a value of $1,000,000 in order to qualify the capital gains to be treated as long-term?

Not A Product Question

DianeW777

It's possible to sell the land as a long term holding period, thereby allowing capital gain treatment, at least for the portion not associated with the home. However the home will not have a long term holding period. This means the home will have short term gain and no special capital gain treatment.

There may be an issue with the land portion the home is built on because it may be considered as a part of the home sale portion. You would need to discuss legal issues with a lawyer to separately sell the land and the home, especially the portion that is part of the home section.

Holding period for constructed, reconstructed, or erected property. IRS Publication 544

The holding period used to figure the applicable percentage for low-income housing you constructed, reconstructed, or erected starts on the first day of the month it is placed in service in a trade or business, in an activity for the production of income, or in a personal activity.

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