Hello All,
We are trying to figure out the most tax advantaged way of going about this. Over a year ago we purchased a property consisting of 4 adjacent lots, we will call them lots 1,2,3 and 4. Lots 1 and 2 currently have an old house on them. We paid $1,225,000 for the entire property. After review of the appraisal and discussion with our CPA she is considered the current capital cost as $175,000 for each lot plus a value of $525,000 for the house. Our plan is to build on two of the lots and sell the other two either now or in the future. We are looking at a lot of options and there are additional factors at play but our question comes down to a capital gains scenario:
Our thought is that right now the vacant lots 3 and 4 are undervalued from a capital basis at $175,000 a piece. We could sell them for $400,000 a piece but would take a huge hit on any profit with capital gains. Instead we would like to build the new house on those lots then could eventually take advantage of the capital invested with the new build plus the 2/5 rule if it ever became time to sell. This leaves us with lots 1 and 2 which have the old house on it (which is currently being valued at $525,000). If currently our CPA is calculating the capital we have invested in lots 1+2+house as $875,000 and we were to tear down the house, does the amount we have "invested" change for future calculation of capital gains? Or could we tear down the house and then sell those lots for say $400,000 a piece in the future and use the original $875,000 for our basis of "capital invested".
Thanks in advance!
