How to do taxes if I am building a house, starting in 2021 and selling in 2022? Can I put all expenses for building the house after I am selling the house?

[DaveF1006]

It depends. You are building your house this year but are going to sell it next year. This is considered an investment sale in 2022. You will report this when you sell your house in 2022. You report nothing in 2021.

To give you a heads-up, your complete costs in building your house will be treated as a cost basis. The amount you sell your house will be proceeds. The difference between your proceeds and your cost basis is a capital gain.

To offer sound tax advice, I would consider waiting at least one year between the time you finish your house until the time you sell because of the nature of capital gain tax. Once complete, if you sell your house within one year, you are subject to short-term capital gains tax. However, if you wait longer than 1 year, you may be taxed at a more favorable long term capital gain rate.

Please review this Turbo Tax post for more details.

[cristianton]

Thanks for the quick response.

To be clear, I bought the land on 25 July 2021 and if I sell the house on 26 July 2022 I'll be subject to short-term capital gain, 15% or I have to keep the house after I am getting the last permit( occupancy) for one year to be on short-term?

Thanks a lot!

[DianeW777]

Yes, holding the property longer than one year will produce the special capital gain treatment which is as follows depending on your total income before the capital gain.  This information does include the land and the house individually, or together if they are both held for more than one year.

• A capital gain rate of 15% applies if your taxable income is more than $40,400 but less than or equal to $445,850 for single; more than $80,800 but less than or equal to $501,600 for married filing jointly or qualifying widow(er); more than $54,100 but less than or equal to $473,750 for head of household or more than $40,400 but less than or equal to $250,800 for married filing separately.
• If your income is less (not including the gain) your rate could be 10%.
  • Long term is a holding period of more than one year (one year plus one day) and receives capital gain tax treatment (0%, 10%, 15%, 20% depending on your regular rate of tax)
  • Short term is a holding period of one year or less and receives ordinary gain tax treatment (your regular rate)

[cristianton]

Thanks for your response.

About spending? 

Started to invest in 2021 for land and foundation and finish the house and sell in 2022. When  I should report investment spending? As the answer before, should I keep for my record and use it for the year the selling is happening and implicit the capital gain?

[ZoltanB45]

Are you building the house yourself, so investment spending would be the machinery and equipment? If this is a business of yours where you build houses and sell them, then the machinery, equipment, etc would be depreciated on the schedule C this year. It would not wait until the sale.

If you are still referring to the land and house as the investment, then you would write it off in the year of sale.

[cristianton]

Thanks for the response.

I am a GC, new in business and I will build by myself with my company LLC. The investment I have for 2021 are land, clean the land, rental excavator, the price for foundation concrete, rebars, gas,permits, etc. I will have in 2022 all others likes: wood materials, siding, labor for framing, HVAC ....etc. All together 2021 +2022 are spending for making the house. All this should be report on 2022 year tax with receipts from 2021 and all spending from 2022 also. Corect?

I just bought a truck but on my name not company. Can I add this on schedule C for 2021?

Thanks!

[AliciaP1]

If you are a Single-Member LLC you can claim your truck on your Schedule C even though it is in your personal name.  The IRS views a Single-Member LLC as a Disregarded Entity so you and your company are essentially one and the same.

The 2021 expenses should be capitalized into the cost of the asset (house/building).  The 2022 costs should be treated the same way.  Once the house/building is built, you would expense any maintenance or replaceable costs.  The deduction comes from reducing the potential gain at the time of sale.

[Chica1964]

What about any income received in 2021 for this the seller may have received from the buyer for build to suit? Does that get reported in 2021 or 2022?

[KrisD15]

The income is recognized in 2022 when the service (house) is delivered. 

It isn't income when the seller/builder still owe him a house or alterations. 

The funds received are offset by the liability the Builder has to return the deposit if the Builder does not provide the house. 

Once the house is delivered, the builder has the right to claim the down payment as his and it is then recognized as income. 

[Magcep]

I am in a similar situation. We bought land 2024, we are building in 2025 and probably selling 2026. If we pay contractors and send a 1099 how do we report this in the 2025 income tax if we are not receiving any income for that year? Wouldn’t this give us a negative income/loss? And then in the 2026 income tax what do we report if the house sold?