New house construction

[JayKay8888]

Hello,

We purchased land in 2020 and have used our own savings to build a house that we planned to live in.   We are nearly finished (estimated Jun 2022), but now will no longer be able to move to that location (we changed jobs and remote is no longer an option).   If we sell the house, is that income or capital gains?

Does it change if we live in it for some period of time e.g. June-September, and then sell it?

[ColeenD3 · Accepted solution]

Yes, it is capital gains income. You may be able to use a partial exclusion if you live there, but it would be prorated by the number of months you lived in the home.

Partial Exclusion May Be Available

If you don't meet the eligibility test, you may still qualify for a partial exclusion of gain if you moved because of work, health, or an unforeseeable event. You can qualify either by meeting a set of standard requirements (the “safe harbor” provisions) or by showing enough facts and circumstances to validate your claim.

Work-related move.

You meet the standard requirements if any of the following happened during the time you owned and lived in the home you sold:

• You took or were transferred to a new job in a work location at least 50 miles farther from home than your old work location.
• You had no previous work location and you began a new job at least 50 miles from home.
• Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.

[JayKay8888]

And confirming....if we never live there, and sell immediately after construction, just straight long-term capital gains would apply?  House = 100K, Capital improvements = 400K, selling price 650K.   So we'd pay 15% on 150K?

[DaveF1006]

Yes it's 15% on a $150,000 gain. Here is an IRS link to refer to for further details.