Sale of a new house

[Anonymous]

Thank you all!! You have been very generous with your time and knowledge.  One small question re LT/ST gain:  I have owned the property for thirty years.  During that time, the value of the land has increased quite a bit.  Should I figure a LT gain on the sale of the land and a ST gain on the sale of the new house?

[Carl]

Should I figure a LT gain on the sale of the land and a ST gain on the sale of the new house?

That's what i think. But I don't know that for a fact. There are many factors that can impact what the correct decision is on that. I suggest you seek the guidance of a local tax professional in your area.

[Hal_Al]

I think you may have a choice.  You can treat it as along term gain because the new house is an "improvement" to an existing long term asset (the property).  But, since you're treating it as a single asset, you have to also recapture the depreciation taken on the old house (since it was also an improvement to the single asset).

The 2nd choice is to treat it as 3 assets; the old house, the land and the new house. The new house being sold for a short term gain. The land sold for long term gain and the old house disposed of for 0 gain or loss (and no depreciation recapture).

But, that's an opinion. I have no expertise on the subject.  As others have suggested, you may need an expert. 

[M-MTax]

I'd go with HalAl's 2nd choice because I am convinced that's the right way to report this deal. BUT you have to add the demolition costs to the land and the old house is fully depreciated and GONE with no disposition. That means you do nothing with the old house.....it doesn't exist anymore. The new house sale is short term gain for the house and long term for the land. Unless you sold the new house for a lot more than you paid to have it built, there shouldn't be too much gain.

One thing for sure is you can't treat the houses as a single asset.....they're not the same and depreciation can't be applied to the new house no matter what. You didn't improve the property.....you destroyed one asset and built a different asset.