Capital gains on one-off house flip

[RaineB]

I bought a house in October 2023, which included a second lot. 

I'll be selling the house before I've owned it a year. I'll sell the lot after owning it for just over 12 months (October 2023 to November 2024).

The house is a one-off flip. I won't be buying any more houses to flip them. I think I'll be able to pay capital gains on both the house and the lot,  rather than treating the profits as active income, if I'm only doing it once, although I think this is a bit of a murky area.

If that's correct, then I'd pay short-term capital gains on the house profits and long-term gains on the lot profits. Is that correct?  And when the IRS stipulates that you must own a property for at least a year in order to pay long-term capital gains, is that a calendar year or the actual length of ownership in months?

Thanks for any thoughts you might have on this.

[tagteam]

https://www.law.cornell.edu/uscode/text/26/1222

More than one year = long-term.

[RaineB]

Thanks for the link.

Any thoughts on the IRS treating my profits from a house held short-term (and not lived in by me, not rented, and not used for business) as an investment, rather than normal income? It seems this is a bit of murky area.

[tagteam]

If it's a one-off, you're probably safe from being classified as a real estate dealer (who would have to report the sale as a sale of inventory).

[DawnC]

If you are a real estate investor, and not a dealer, that is the way it should be reported - as a short-term investment sale.  It all comes down to the intent behind the property purchase. Even if you originally purchased the property to hold, but ended up selling it sooner, it does not mean that you are a dealer.

To enter the sale of investment property, enter it in the Investment section - not the Home Sale section (that is for personal residences).    Where do I enter investment sales? 

Short-term capital gains are taxed as ordinary income.