Capital gains on old lot/new construction - Posted by michaela-CA

Real Estate Investing
#1

Posted by michaela-CA on July 24, 2007 at 07:22:58:

Trevor,

thanks. Actually, All the lots I own are still in Atlanta. And I still don’t have a California license, but a Florida one, so for now I’m not considering myself a
California residence quite yet :wink:

Michaela

#2

Capital gains on old lot/new construction - Posted by michaela-CA

Posted by michaela-CA on July 22, 2007 at 19:49:21:

Just wondering:

I have a number of vacant lots, that I’ve owned for more than 1 year. If I build on them now, is the capital gains tax based on the + year holding time of that address, which owul dmean 15%. Or is it based on the new construction?

Michaela

#3

Re: Capital gains on old lot/new construction - Posted by BTI

Posted by BTI on July 23, 2007 at 08:55:22:

Michaela

It is the amount of time you owned the property, not what you did to it. The construction time and being put into service would only apply to depreciation if you were to keep them.

BTI

#4

Re: Capital gains on old lot/new construction - Posted by michaela-CA

Posted by michaela-CA on July 23, 2007 at 09:15:41:

BTI,

thanks, that what I had been hoping for. So, I would only have to pay 15% capital gains after selling the new construction, as I have owned the lot longer than a year.

Michaela

#5

Re: Capital gains on old lot/new construction - Posted by Dave T

Posted by Dave T on July 24, 2007 at 13:42:00:

Actually, it depends upon your original intent when you purchased the lot. If you purchased with the intent to develop and sell for profit, then your sale will be a dealer disposition subject to ordinary income taxes and self-employment income taxes.

For a dealer disposition, holding period does not matter.

This is an issue to discuss with a licensed tax professional.

#6

Re: Capital gains on old lot/new construction - Posted by Trevor

Posted by Trevor on July 23, 2007 at 22:54:38:

Hi Michaela,

Kind of…

The federal capital gains tax rate is 15%…

However, California has a state capital gains tax rate that is about 9%.

So, overall you will pay about 25% in capital gains tax.

Sorry to burst your bubble.

Of course, you can defer that tax using several options out there like a 1031 exchange, installment sale, structured sale, etc.

Good luck!

Trevor
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