Hello. Thanks in advance for any help. We sold our primary residence in November 2021. We then purchased another home in October 2022. The property is a combination of multiple lots with a house and a separate garage. We are turning the garage into a house. We will retain that house and the lot it sits on and plan to sell the original home and the remaining lots. We think we could make more money by selling the house and 2-3 lots together and then sell the 2-3 remaining lots separately (depending on how we decide to list it). I am trying to figure out what would be our best option for taxes and capital gains. Since this will be the second residence we have sold in under 2 years and we have lived in this property for less than one year, I assume we will be paying capital gains on any profits. I don't even know I should be calling it a primary residence or an investment property since the intent from the start was to live in it, renovate the garage and then sell part and retain part of it. We would likely have a significantly larger profit from dividing the properties and selling a few of the lots separately from the house, but if doing so means we end up paying most of the difference in taxes, then I don't see the point. We purchased the entire property for $400,000. I think we will have about $70k in renovations, with about $60k of that being on the house we are keeping and $10k on the house we are selling. I'm thinking if we sell the house and 2 lots, I would probably list that portion for $250k then list one lot for 25k and two lots combined for $50k. If I list the house and three lots, it would probably be $260k and then two lots combined for $50k. If I list the house and all the lots together it would be for $275k. So depending on how we do it, we could have roughly a $30-50k difference in potential profits. I'm hoping to retain a mortgage on the house we are keeping for @$200k with an 80%LTV, assuming it's going to be worth about $250k appraised value. I have so many questions. First of all, can I use the entire $70k I spent on renovations to adjust my cost basis even though I'll be retaining part of the property? Secondly, how is the value of the property I'm retaining determined for tax purposes (appraised value, loan value?) Thirdly, if I end up with 2+ different sales when splitting the property, do I just do the math and count them all as one sale on my taxes? Any info or advice on what to do would be much appreciated. Thank you!
