How long is the holding period?

When does the 1 year 'holding period' begin to qualify for long term capital gains tax on real estate house?

• I would be very grateful if someone helped clear this up for me -- when exactly does the holding period begin to qualify for long term capital gains treatment on a real estate investment home? A friend of mine asked his tax preparer this question and the answer was "the holding period begins on the day I first list the house for sale." I bought a vacant lot in Spring 2010 and completed my first spec home in October 2011. The house was listed for sale in July 2011 before it was completed. According to the definition above I only recently dodged a bullet. I was $1,000 away from meeting a buyer's offer. If the sale had went through I would have had to pay nearly 30% of my profit in taxes to the federal government, not to mention what the state would try to take from me. I want to avoid the blood sucking thieves of the federal government as much as possible. Am I correct in assuming then that I cannot close on the house until July 2012 if I want to qualify for the long term capital gains tax rate of 15%? And if this is true, none of it makes sense to me. To qualify for this rate I have to wait until the house has been listed for sale for an entire year and not sell it until 365 days are up? What is the point of putting it on the market and then rejecting offers in the meantime until the year is up? This just seems like another case of the oppressive garbage that we have for a federal government making it as difficult as they can for investors to eke out a living without having to pay them most of your income. They don't front any of the risk. I don't think they should take so much of the reward.

• Answer:

  Every sentence of you post is twisted around. You don't get capital gains rates on inventory. If this is a spec house, it's inventory. And yes, the gain on the sale is subject to both income tax *and* self-employment tax.