Building your own home, no closing date, and two home sales in 12 month

[RTR52]

4/2016 my partner and i bought a cozy apartment (unmarried)

we had a terrible storm in 2018 and had to pay, in addition to HOA, a special assessment of 20,000$ for roof repair " Special assessment" 

12/2020 I bought a plot of land 

1/2021 we began to build a house (we are both listed on home building contract as mr and mrs so and so respectively with the general contractor, and it was supposed to be done 9/2021)

Due to covid delays the house was not completed till 1/2022

We sold our apartment (sale date is 5/2022) but we moved into the new build 1/2022

We have no closing " sheet" as we paid cash and built it ourselves but have permit documents with dates

Unfortunately now one of us has a job change >200 miles away and are faced with selling the new build  :(

For our apartment sold 5/22 (bought 4/16): 

We "lost" money net. So the silver lining is we may not be " using up" our exclusion?

For round numbers sake, we bought at 100K; had a roof special assessment and renovations  (25 K); and sold for 115K minus agent fee and title portion  = net 92,000 $

We will be getting a 1099 per the closing attorney.

For our new build: 

We did a lot of work ourselves or sub-contracted where we have slips showing work dates and supplies by the subs and our cancelled checks

We anticipate the new build will not sell till next year but we hope to put on the market soon.

My concerns:

1. We report the apartment sale so we took an exclusion? Or are we not "using up the exclusion" because we have a net loss?

2. We have to sell before 2 years but have a job contract that is 200 miles away. Is it an issue that we are not married? Does IRS expect us to be separated and keep two residences by IRS or can we both use the exclusion (partial depending on date of new build sale) each?

3. We have no " closing date" on our new build. The county deed recorded from 2020 for land is all we have. Our general contractor said since it was cash he does not have a closing and he will not add our names and that is between " us".

When we signed contract, paid off subs, and he gave us a copy back his job was "done" but that is dated for 1/2021.

Should I use move in date to determine residency? Which means if we sell by Christmas we will be in there for 11 months and can take partial exclusion (11 months /24 months = 114,583 or that amount each?)

Thank you

[rjs · Accepted solution]

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@RTR52 wrote:

1. We report the apartment sale so we took an exclusion? Or are we not "using up the exclusion" because we have a net loss?

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You only use the exclusion if you have a gain. If you sell at a loss you do not use the exclusion. Even if you have a gain, using the exclusion does not happen automatically. You choose whether or not to use the exclusion for a particular sale. If you don't want to use it on the sale of the apartment, don't use it.

The special assessment was for repairs, not an improvement, so you probably cannot add it to your basis. Check with a tax professional, or maybe someone else will comment on that.

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@RTR52 wrote:

2. We have to sell before 2 years but have a job contract that is 200 miles away. Is it an issue that we are not married? . . . can we both use the exclusion (partial depending on date of new build sale) each?

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You can each claim a partial exclusion on your individual tax returns. Your partner qualifies for the partial exclusion because "a co-owner of the home, or anyone else for whom the home was his or her residence" (i.e. you) is moving for a new job that meets the distance requirements. You don't have to be married.

But only an owner or co-owner can report the sale and claim the exclusion of gain. From what you have written here, it's not clear who actually owns the home. The building contract does not determine ownership. There's a deed that shows who the owner is. You said "I bought a plot of land." If you are the only owner, then you have to report the entire proceeds of the sale on your own tax return, and only you can claim the partial exclusion. Check with a real estate lawyer to determine who actually owns the home that you are selling.

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@RTR52 wrote:

3. . . . Should I use move in date to determine residency?

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Yes, the date that you moved in and started living there is the beginning of your period of residence.

[Hal_Al]

Q. 1. We report the apartment sale so we took an exclusion? Or are we not "using up the exclusion" because we have a net loss?

A.1. You are not using up an exclusion because you sold at a loss and you are not required to claim an exclusion even if you had a gain.

Q.2. We have to sell before 2 years but have a job contract that is 200 miles away. Is it an issue that we are not married? Can we both use the exclusion (partial depending on date of new build sale) each?

A. 2. You can each claim an exclusion on your share of the gain, as long as you meet the ownership and living in it rules.

Q. 3. We have no " closing date" on our new build. Should I use move in date to determine residency?

A.3. Yes. 

Q.4. Which means if we sell by Christmas we will be in there for 11 months and can take partial exclusion (11 months /24 months = 114,583 or that amount each?)

A. The $114,583 is the maximum gain that you may (each) exclude, based on the prorated time of residency.  If your actual gain was less, the lesser amount is excluded.  

[Mike9241]

For round numbers sake, we bought at 100K; had a roof special assessment and renovations  (25 K); and sold for 115K minus agent fee and title portion  = net 92,000 $

$23,000 in closing costs sounds quite high. not everything on a closing statement is selling costs, some may be deductible as taxes or interest. other may not be deductible at all and are personal expenses.  still, you had a loss considering a cost basis of around $125K and a gross selling price of about $115K 

[Critter-3]

1. We report the apartment sale so we took an exclusion? Or are we not "using up the exclusion" because we have a net loss?  NOT ... sale of a personal residence at a loss is ONLY reported if a 1099-S is issued for the sale but the loss is still not deducible.

2. We have to sell before 2 years but have a job contract that is 200 miles away. Is it an issue that we are not married? Does IRS expect us to be separated and keep two residences by IRS or can we both use the exclusion (partial depending on date of new build sale) each?  The IRS allows a partial exclusion to be used if you have to move for unforseen circumstances like a job change.

3. We have no " closing date" on our new build. The county deed recorded from 2020 for land is all we have. Our general contractor said since it was cash he does not have a closing and he will not add our names and that is between " us".

When we signed contract, paid off subs, and he gave us a copy back his job was "done" but that is dated for 1/2021.

Should I use move in date to determine residency?

Date to determine residency is the date the home got it's "residency certificate"  not when you actually moved in. 

Read up on this in Pub 523 ...  https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-residence-real-estate-tax-tips

[RTR52]

Thank you so much ! The answers in this thread are so helpful and clear. Thanks for the link also. I saw the estimate calculator there for "partial exclusion" so that is a super tool to know for next year. 

We have homestead exemption in both our names, the land deed only had my name. The county told us the deed needs to be fixed when they came to do apraisal and we have that in process. 

We have proof 50-50% that we each paid a fair share for the house. 

For example framing: 40k, she paid 20k and I paid 20k and so on with dated copies of cashed checks. 

I did not realize the deed needed to be updated..... but your reply made me understand what the county notice was telling us!

Thank you so much to all 3 of you for taking of your time to help us. We sure wish we had not built our forever home but then job-life-change just happens. We were always saying " at least 10 years in our dream home". They say that is life..looks like I have to just learn to roll with it.