bought house to use as personal residence but now will sell it

[Brian Mitchell]

Hello everybody,

I bought a house "up north" at a tax sale at the end of 2013. Original intent was to fix it up and move/live there. The house needed work but I didn't do to much to it in 2014 but this year I am getting everything done and should have it all rehabbed.  I have also decided not to move there but to sell it ...probably next year. It has been vacate all this time. So I guess it basically is turning into a flip. Rather long-term but....

I have no idea how taxes work in this situation. Can I write off my rehab costs this year? Mileage? Can I depreciate the house on my taxes this year? Do all my costs get added together and this is my cost basis? And if sold next year do I subtract my cost basis from net proceeds and this is what I am taxed at? Would this be long-term capital gains or ??? Are there any ways to minimize the taxes I will owe?

A lot of questions, I know. Maybe I need a good book on the subject. Any suggestions?

I truly appreciate any help.

[Bill Exeter]

Originally posted by @Account Closed:

Sounds like it has been two years since you purchased and will qualify for a capital gains exclusion. Assuming you want to take the position this was not held for investment and the intent was to occupy as a personal residence. In this case, no need to figure out your cost basis (improvements, depreciation, etc) to calculate income subject to capital gains.

I wanted to jump in here and clarify this point.  You must have owned the property AND lived in the property as your primary residence for a total of 24 months out of the last 60 months in order to qualify for the 121 Exclusion.  you would not qualify for the 121 Exclusion since you never lived in the property as your primary residence. 

IF you could prove that it was investment property (and not held as a rehab/flip), you could qualify for a 1031 Exchange.  However, given that you intended to rehab it and then move into it, and then later decided it was a flip, it would be very difficult to prove that it was investment property.  Everything that you have said so far shows intent to hold for sale (flip).