I'm considering building a 2nd home on a piece of property that will be gifted to me soon. The cost basis of the land is $1000 and I'll inherit the holding period which is ~40 years. The land is worth $25K. If I sold the land right away I would pay long term capital gains on the profit ($24k). What happens if I build a house on the land and sell it in 9 months for a total profit of $45k? Is the house considered an improvement of the land? Would I still be paying long term capital gains even if I sold it in less than 12 months?
2nd home gets no special deals.
If you add a building, you add the cost of the building to the cost basis.
If you sell, you pay 15% on the gain.
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If you inherit the land your tax basis will be the $25,000 value at the date of death of the person who died. If you sell it for $25,000 there is no gain.
If you build a house on the land and then sell that property within the nine months you mentioned you would have a short term capital gain taxed at your regular tax rate.
If you build a house on the property and sell it after twelve months you would have a long term capital gain taxed at 15% under current law.
from the gist of your story, you don't intend for this to be a home
the basis of your inheritance which is not taxable is the value at the time you r'cd it(which you say is $25K)
if you build a house, you have all your costs of construction to accumulate to arrive at a basis for that
since you apparently have no intention of living in it 2 yrs(or owning it 5)
it will be cap gains on the total profit you make
building the house is land improvement of course, but it is a capital investment