Real Estate Agent · Roseville MN · Member since 2016 · 30 posts · 9 votes
Hi, I am building a spec home. Its a 2 unit town home and i am going to be living in one half and selling the other half. When the sale takes place it will knock a large percentage off my build cost and i will Cary the left over balance of the loan. Will i have to pay tax on the sale even though all the money went back to the bank to pay down the balance?
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
10y
Yes, you will. IRS will tax the sale profit no matter what you do with the proceeds of the sale. Consult your CPA. I am thinking that since you are selling a property you built on spec, the deal will be viewed by the IRS as the sale of dealer realty and dealer tax treatment will apply. In this case, not only is the profit on the sale taxed as ordinary income, self-employment income taxes will also apply. Make sure you have a discussion with your tax adviser before you do anything to develop an exit strategy that minimizes the tax impact of a sale.