Captial Gains Tax on house

[LJMS]

We want to sell our house:

We purchased the land that our house on in May 2022 and made it our primary residence by living in a camper. During that time  we started the process of designing and building house and a work shop.

The new house was completed in July of 2024 and we moved in.

Land purchase was $200,000

House cost about $700,000

Shop Cost of $80,000

We think we can sell it for $1,100,000.

How do we figure the Captial Gains tax?

[Vanessa A]

Since the camper was your primary residence, the new home would not be your primary home until you actually moved into the home.  So the home and shop would not count for the home sale exclusion as you did not live in the house for at least 2 out of the last five years, nor did you own them for at least 2 years.  

So if you sold the home for $1,100,000 and you have total costs into the home of $980,000 you would have a taxable profit of $120,000 that would be subject to Capital Gains Tax on the land, and as long as you wait to sell until after July so you own the rest for one year the entire sale would be treated as a long term capital gain. Your other income will play a part in the rate, but for married filing jointly, since you have $120,000 in profit, it will be at least 15%. So assuming a long term gain, the taxes would be $18,000.  You should also make the payment as soon as you sell instead of waiting until tax filing to pay in order to avoid the underpayment penalty.