I signed a purchase contract for a new construction home with a builder few months ago. The price of the same home I am building has gone up by around $150k as per the builder current pricing. If I decide to sell this house once it is ready in a few months will I have to pay capital gains taxes if I decide to close on the house and sell right away without moving in? What are some other options to avoid paying capital gains?
Look into a 1031 exchange. Lots of threads on that here on BP. I don't think there's any other way to avoid capital gains.
@Stephanie P. Thanks for the response. I will look into 1031 exchange
@Karan Sakhalkar , The 1031 might be an answer. But there may be some risk. Property that qualifies for 1031 treatment is property that you purchased with the intent of holding for productive use. Property you purchase primarily for resale does not qualify for 1031 treatment. So the real question is what was/is your intent and how can you demonstrate it.
If your intent was to hold for productive use then there are usually things that can demonstrate that - like actually holding and generating rent, making it available for rent, having a normal business model where you buy and hold, correspondence with you professionals. All these are things that could demonstrate that your intent was to hold but something has caused you to change your intent.
In your case it's obviously the short hold period (immediate sale) that is working against you. There is no statutory holding period but the longer the better and most folks feel comfortable at anything more a year.
What's working for you is the extraordinary appreciation even befe construction is complete and the fact that you are now uncomfortable with holding such an asset for investment use.
So in your case it's going to come down to what you and your accountant believe you can demonstrate as a legitimate intent. 1031s are not an audit trigger but my rule is never do something just because you can get away with it. But likewise never not do something you know to be right just because it may be questioned.
Something like you describe can be a very fortunate accident when it happens once. When it happens several times a year it starts to look less.....accidental.