Mr.Ingram:
I believe the tax rate is the same for short term capital gains
and regular income (other than earned income which is also
subject to FICA) here in the US so it would't matter in this
case. However, if the writer had a loss, he would be subject to a
limitation of being able to write off more than $3000 against his
other income unless he had offsetting gains. Also, since it
appears this person is not a realestate professional is is
unlikely the IRS world allow him to claim his gain/loss any place
other than the capital gains schedule.
----------------
david ingram replies:
I seem to see more of the IRS imposing business income on short
term real estate sales then anyone else. I agree that the tax
rate is the same on short term and business income but on a
$20,000 profit as an example, the FICA would be an extra $2,800,
a significant difference.
Where the IRS finds the items is when they look at the financing
and find that the person who was "building his own home" put "in
writing" that he was going to sell the house when finished.
Or, an irate spouse or friend turns them in.
Thanks for the comment though. I learn more from this Q & A
forum than anyone else does.
-------------- Original message from
centapede at lists.centa.com: --------------
> My question is: US-specific
>
> QUESTION: Hi,
>
> I am in the process of having a home built buy a local
builder in AZ. There
> is only a couple of weeks until the closing date and I have
decided to go
> into business with a partner but we would plan on moving the
business to TN
> due to land costs. I am currently renting an appartment since
i sold my
> previous home of seven years. I own no other residences and
"plnned" for
> this to be my primary home. Will I be able to avoid capital
gains if I just
> flip the home and move to TN? Thanks!
>
> ---------------------------------------------------------------
------------
> david ingram replies:
>
> The answer is no.
>
> The US allows you to make up to $250,000 per individual on
the sale of your
> principal residence.
>
> To qualify, however you have to live in it for 24 months.
>
> There is a provision which allows you to move earlier for
extenuating
> circumstances such as a job transfer, death of a spouse,
birth of triplets,
> etc.
>
> Moving to another state or start a business would or should
be a reason as
> well although, I, personally have not seen it used. However,
the tax free
> portion is reduced on a pro-rata basis determined by the
number of months
> you were actually physically in the house. Therefore, is 24
months is
> $250,000, 6 months would be 6/24 x's $250,000 or $62,500. If
you have not
> actually lived in the house, there is nothing to divide by
and the whole
> house is subject to at least short term capital gains tax at
best and
> possibly straight income if the IRS got the idea that maybe
you had built
> the house as a spec house for resale. They usually get that
idea by looking
> at mortgage applications where the individual tells the
mortgage company
> that the house will be sold.
>
> David Ingram's US/Canada Services
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