1. While the house is being built, and lets say there was loan was taken out to build, so there is interest, is this consider a investment expense or like with a current residence you just right off the interested paid on the loan.
interest on construction loans is qualified residence interest if the following requirements are met
a) a home under construction is treated as a qualifying home for up to 24 months provided that when ready for occupancy, the house is used as a main or second home.
b) if construction takes more than 24 months, the interest for the remaining months is non-deductible personal interest
c) loan proceeds must be directly traceable to home construction expenses including the purchase of the lot
d) before construction begins, the loan does not qualify as acquisition debt and the interest is treated as non-deductible personal interest
5) 90 day rule - a loan incurred within 90 days after construction is completed may also qualify to the extent of construction expenses made within the period starting 24 months before completion of the house and ending on the date of the loan. notice 88-74
Debt incurred after the residence or improvement is complete, but no later than the date 90 days after such date, may be treated as being incurred to construct or improve the residence to the extent of any expenditures to construct or improve the residence which are made within the period beginning 24 months prior to the date the residence or improvement is complete and ending on the date the debt is incurred.
Whether a residence or an improvement is complete depends upon all the facts and circumstances.
2. How is capital gains from the sell of our original house applied to the new house if it was already purchased with the intent of it being your new residence?
rollover of gain is no longer permitted under the tax laws for a personal residence. as a married couple, you are entitled to exclude up to $500,000 of gain from the sale of your principal residence if it is used as a principal residence by both spouses for any 2 years out of 5 years before sale. in addition, at least one spouse must own the residence for any 2 years out of 5 years before the sale
3. The land is being purchased January 2022. What do we need to be aware of for reporting our tax returns for 2022?
the purchase of the land is not reported. if you have questions about specific items or issues, please post back
4. I think I read that any improvements to the land, expenses - building the house, drilling the well and installing the septic and pool are taking into consideration for the capital gains when the new house is sold again, correct? What if the house is never sold, but is inherited? Are those improvement expenses still counted?
capital costs/ improvements are added to the basis when determining gain on sale.
inherited basis depends on where the property is located
If they were in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an opt-in community property state that gives both parties the option to make their property community property.) the entire basis of the property would have been stepped up at the death of the first spouse. However, in all of the other states, each spouse has separate basis (half of the purchase price) and the widowed spouse only receives a basis increase on the deceased spouse's half of the property. since inheritance would likely be far in the future the laws could change
