Discussion:Speculation home builder
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Discussion Forum Index --> Tax Questions --> Speculation home builder
Pauldoniscpa (talk|edits) said: | 22 November 2005 |
| Would the gain from the sale of a home constructed by an individual be capital gain (investment property) or ordinary income subject to self-employment tax (trade or business inventory)if the individual purchases raw land and constructs new homes at a rate of one home per year or less? I would like a reference to an IRC code section, IRS Publication, or reg. section if possible. It is not clear to me if the property is a capital asset or inventory. | |
| 4 December 2005 | |
| Is this his major source of income? Does he have a contractors license? Does he want to deduct other related business expenses if this is a business? Might want to look up the IRS Pubs "What is a trade or business?". | |
Hubert Altman (talk|edits) said: | 5 December 2005 |
| I would say he is in business and the sale of the house is income and the expenses to build is deduction and the profit is taxable as any business fed state and s.s. taxes. file this on schedule c. | |
| 9 December 2005 | |
| If he has a contractor's license he is in business and needs to use sch.c. Otherwise, it is an investment and the gain goes on sch.d | |
| 16 December 2005 | |
| If the land had been purchased for investment and later built upon there may be a reasonable position to take that the land portion would be capital gain but the home construction/sale would be earned income for SE purposes. I suppose an appraisal of the land before the beginning of improvement would be useful.
just a thought. | |
| 17 December 2005 | |
| Probably subject to Uniform Capitalization Rules which means he reports on Sch C his expenses as Cost of Goods Sold when he sells the house. See the section pertaining to this in Pub. 538. | |
| 18 December 2005 | |
| United States Tax Court - TC Memo 1997-438 - Pettit versus IRS.
This makes it crystal clear that the situation you posed is not capital gain or loss. In addition, Regs 1.460 makes it clear he is not excluded from the Uniform Captialization Rules. Go to Tax Court web site and do search on home builder to read above mentioned case. | |
| December 21, 2005 | |
| I have heard of some builders living in the home to get the two year/primary residence out of the way and then selling it to get the exclusion of gain. Building the home would include all materials of course and all labor except for yours. The gain (in most of the country) would then be tax free. Imagine making ~$250,000 over two years, tax-free, What that would mean! | |
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