Capital Gains in Real Estate for Newb

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PGR
Posts: 396
Joined: Thu Apr 10, 2008 6:25 pm

Capital Gains in Real Estate for Newb

Post by PGR »

Several years ago we purchased some acreage to build a retirement home on. Plans changed. We're building elsewhere and are selling the lot.

It's increased considerably in value in the interim - let's say in round terms it cost us $150k and now we are selling it for $220k.

Since it obviously never became our residence it now is considered 'investment property' - is that correct?

We didn't really do any improvements other than
* I spent days of sweat equity cutting out dead trees and clearing some brush
* Paying for a detailed topo and tree survey in AutoCAD (originally for our architect but also added some value to the next buyer)

We of course paid some closing costs when we bought it and are paying some closing costs when selling it.

And we paid annual property taxes in the interim.

Does anything here help raise the basis when we ultimately have to calculate our capital gains tax on this sell at the end of the year?

I'm a bit of a newb on this topic - only have sold a couple of primary residences over the years, the last one being decades ago. Appreciate any insights or pointer to further info.
fabdog
Posts: 2543
Joined: Wed Jan 16, 2013 12:59 pm
Location: Williamsburg VA

Re: Capital Gains in Real Estate for Newb

Post by fabdog »

Publication 544 (sales of assets)

https://www.irs.gov/publications/p544

And publication 551 (basis of assets) will be helpful

https://www.irs.gov/pub/irs-pdf/p551.pdf

the clearing of brush would be maintenance, and the survey I do not believe will increase your basis... it was necessary for your architect but isn't an "improvement" to the property. If you had made a road, or paid for utility connections, those would be improvements that could be added to your basis.

Property taxes do not influence basis.

The closing costs listed in pub 551 that you paid on purchase add to your basis, and those you pay at sale as listed in the pub reduce your net proceeds

Mike
Topic Author
PGR
Posts: 396
Joined: Thu Apr 10, 2008 6:25 pm

Re: Capital Gains in Real Estate for Newb

Post by PGR »

Thank you!

Those pubs are pretty clear and helped and I'll be including the typical closing fees from purchase and sell.

I'm also concluding that the "HOA Resale Certification Fee" we paid as part of closing would be allowable to deduct from the sale proceeds (unless someone has an argument against that).

Thoughts on these (below) being allowable as adding value or improvement? (Both were relatively minor costs)
  • The Survey was used as a negotiation point whereby we offered it as a counter to the buyer's initial offer and stayed at our asking price. The buyer saw value in it. The buyer agreed to our asking price. We delivered the survey in paper and digital format to the buyer. It was not called out in the contract as we delivered it to the buyer when we accepted the contract well in advance of the actual closing. (As far as I know there was no additional survey done as might have been required by say title company, appraiser, buyer, etc. so I assume they all 'accepted' the survey.)
  • The brush/trees were cleared so as to create a drive to (A) partially penetrate the property with a vehicle from the road and to (B) further clear a walking path to the build site and finally to (C) clear the build site itself. I did all the felling of trees but paid someone to haul them away. While my sweat equity was free - it's the hauling cost that I paid and am considering including
Thanks,
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