Capial Gains on 2nd home - Need help

L

landoman

New member
I am looking to sell my 2nd home near Minocqua and purchase another larger one. I have built this home from nothing and did all the work myself with the exception of concrete, plumbing, well, and septic. My issue is that I have reciepts for most work but it only adds up to mainly materials as I did the work myself.

How will the capital gains work on this?? It would cost me well over 100k to have a builder rebuild this home but I only have 60k in receipts and it is worth 2x that.

Can i roll the "gain" into the new house and not pay the capital gain taxes or does that only work with a primary residence?

I have called my CPA but he is on vacation for the week so a little insight would be appreciated.
 
J

jr37

Well-known member
Talk to a good CPA. There are to many variables to this.

We sold ours about 3-4 years ago in the Tomahawk area. We did very little in improvements, but its value still doubled in the 8 years we owned it. We paid capital gains, but I believe our CPA saved us a bunch.
 
W

whitedust

Well-known member
Try Amy in Eagle River,WI.

H&R Block
Amy Carey
715-479-6148
602 Michigan
PO Box 1976
Eagle River, WI 54521
 
J

jimjones

New member
Obama says your screwed. He needs your profits for the up coming health care (obamacare tax). Please pay it, so others can sit on there arses!
 
Z

zimmbob

Member
booondocker said:
Why not do an exchange, and pay NO capital gains? (Check it out 1031 exchanges)
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Just be careful with this. The gain doesn't go away, It just adds on to the next time you sell. Pay now, or pay later..... Need to consider is your tax rate better now or will it be better down the road....

I'm pretty sure you can find a way to account for your labor in the cost basis of the home. Your receipts plus a reasonable amount of hours at a reasonable construction rate won't be questioned. Even though it didn't cost you anything, it still has value. Make sure whomever you talk to, they are well versed in real estate transactions.
 
S

squat

New member
Its bee a while and I’m sure the laws changed some but when we sold out cottage that was built from scratch like you said, we were able to write of some sweet equity.
 
B

booondocker

New member
I am NOT a tax expert, but doing a 1031 exchange releaves capital gains tax completely on the sale, and so long as you don't sell the next property you will not have to worry about any gain for a very long time (It doesn't expire...eh) That gain will often get smaller in comparison to your other values as time goes on. In otherwords the longer you hold it before sale the better off you are. The silk suit crowd does these things all the time. So why not you?

I have also hear of people doing this, and then moving into the home and living there for 2 out of the last 5 years and calling it homestead and paying nothing again...all the while preserving their primary homestead for another exemption.

There are "gray" areas in this landscape and you need to talk to those who have used these reductions successfully rather than take the word of those who just shun it because it "doesn't sound right". Not all cpa's are created equally, just like lawyers and candle stick makers.

Stay within the law, but take advantage of every respect of the law and you can save some real scratch.
 
L

landoman

New member
I have looked into a 1031 exchange and talked with our real estate attorney. CPA is currently MIA.

I am not sure if I can use the 1031 exchange for a second home or not. This is what my real estate attorney is looking into now. I did get to talk with the CPA's assistant who I think knows enough to be dangerous. She stated that I would not be able to use the 1031 exchange for a second home and only applied to me if I actaully lived in the home for 2 out of the last 5 years. She also stated that my labor was worth nothing due to the fact that I did not pay myself to build it. Again, this is the assistant so I am not going with her 100% on this.

My other issue is that I paid cash any services. Septic, Well, Concrete, and Plumbing. If I turn up receipts, I wonder if it is crosschecked as I am sure these guys did not put it in their books as I got a large discount for paying cash. I may be screwed either way.
 
B

booondocker

New member
Cash payments do have a double edged sword affect on gains. Surely they did NOT report this and would no doubt NOT back you should it be questioned.

Since a second home is an investment, I would be very surprised if it could NOT be treated in a 1031 exchange.

As for not counting your own labor, I suspect she is right about that, since there is no provision for subtracting sweat equity that I know of.

I will do a bit of research and see if there is any reason why you could NOT use a second home in a 1031 exchange.

Where is NASH when you need him??? Gooru, of research experts.....that he is.
 
F

frnash

Active member
booondocker said:
Where is NASH when you need him??? Gooru [sic], of research experts.....that he is.
Click to expand...

I know what I know, and I know what I don't know. I generally only use Internet citations in a forum such as this to support or amplify what I am familiar with, 'cuz you certainly can't believe everything you read, especially on the Internet! Beyond that I certainly am NOT an expert in real estate/tax law, so I'll defer to those who are! :)

It looks like you found a fairly credible reference!
 
H

Hoosier

Well-known member
1031 exchange should apply. If you don't go that route, you should be able to add your labor into the basis. Also, there may be an exception for gains up to a certain point on 2nd homes. You might also consider just paying the gains now as someone else mentioned, particularly if your labor costs bring them fairly low You never know what the future may bring, but today's capital gains rates are almost for certain going to be higher in the future. Just something else to consider
 
B

booondocker

New member
frnash said:
I know what I know, and I know what I don't know. I generally only use Internet citations in a forum such as this to support or amplify what I am familiar with, 'cuz you certainly can't believe everything you read, especially on the Internet! Beyond that I certainly am NOT an expert in real estate/tax law, so I'll defer to those who are! :)

It looks like you found a fairly credible reference!
Click to expand...


Heehe...just like Pavlov's dog, miss spell a word or two and out he comes from the hole in the woodwork...

Now find this poor lad a way to save some of his hard earned money and sweat equity....and don't give me "it's out of my bailiwick" thing....poor fella needs his money's worth...and that's all it is worth!
 
chords

chords

Active member
If you paid for cash jobs, you have no reciept. It never happened. Self Labor hours don't count. Make a clean break and move on.
 
E

ezra

Well-known member
? what if you refinanced and pulled equity from the home are you on the hook for that money if you sell also?
 
L

landoman

New member
I found my CPA. He states that any money that I spent I should use toward to total cost of the home whether it was cash or not. He states that the capital gain would be 15% for federal plus an additional 2.7% for wisconsin. He did not beleive that I would qualify for a 1031 based on it was never rented as an investment property. He also stated that I may be better off selling this year as opposed to next year as the tax is set to expire and if it does will go higher. Mini puke in my mouth.
 
T

TheFly

New member
1031 exchange. but u need to have the 2nd home contract done because there is a short window to roll over funds
 
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