Declaring capital gains on sale of vacant land

[michonwheeler]

I purchased raw land in October of 2017 for $90,000.00. We (my mother & myself) built our home over the next three years. Due to Covid, we could not move into the property until 2020. We did a short plat and anticipated selling the property this year at $225k. We've spent over $100k improving the property with sewer, water, utilities, and engineering fees. Will we (my husband & myself) be required to pay capital gains, and if so, at what rate? Should the math be, half of 90K + half of 100k = $95k minus $225k for capital gains on $135k @ 15% $20k?

[Mike9241]

your message is unclear. you say "my mother and myself" but then say my "husband and myself," you say you moved in in 2020 but why are you selling now?.  it is unclear who owned the property, who lived in the property, and the reason for sale.  these all affect the taxes that might be owed.  I would suggest consulting with a real estate lawyer to go over your situation 

in theory, if selling for $225 bought for $90, and paid $100 for improvements, the gain should only be $35   but there are many things missing from your narrative.

[NCperson]

@michonwheeler if I understand correctly you and your mother purcahsed land and then improved it; each of you have a 50/50 interest in the investment  You never lived in the hluse

the land was purchased for $90k; the land inprovements were $100k. 

were there any capital improvements to build the house or is that included in the $100k?

then you sold the property for $225k - and does that include your mother's share or did the home really sell for $450k and the $225k represents your half?

did you live in the house for 2 years? you state you couldn't move in until 2020.  it is possible there is no capital gain tax at all because of the exclusion, but it's not really clear if you truly meant you lived there for 2 years. 

please clear up the story.....

[michonwheeler]

Originally bought the property 17,000+ sq/ft with my mother 50/50 ownership in 2017.  Built and currently occupy our home with my mother and husband.  Did a short plat and subdivided property. Our home sits on site A the 9,000 sq/ft (not for sale). Site B is the remaining 8,000 sq/feet raw land for sale at the $225k.  I hope this clears up the confusion.

[NCperson]

<<Should the math be, half of 90K + half of 100k = $95k minus $225k for capital gains on $135k @ 15% $20k??>>

that appears directionally correct; I guess I'd wonder if there is 8k sq feet on one property and 9k on the other, why aren't the costs split 8/17 and 9/17? I don't understand the 50/50 logic.  if you and your mother each own 50% of A and 50% of B, then the cost is allocated based on the lot size in my opinion.

the capital gains rate is subject to your tax bracket - (and separately, don't forget State income tax if that applies)

Long-term capital gains tax rates for the 2022 tax year

FILING STATUS 0% RATE 15% RATE 20% RATE

Single	Up to $41,675	$41,676 – $459,750	Over $459,750
Married filing jointly	Up to $83,350	$83,351 – $517,200	Over $517,200
Married filing separately	Up to $41,675	$41,676 – $258,600	Over $258,600
Head of household	Up to $55,800	$55,801 – $488,500	Over $488,500