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How long is the holding period?

How are spec homes taxed? Capital gains or ordinary income? When does the holding period begin on the house?

  • I'm confused about how spec homes are taxed. Are they taxed as capital gains or ordinary income? If I build too many of them will I be taxed at an ordinary income tax rate? Also when does the holding period begin for long term capital gains treatment? I've been told that it's when the house is listed for sale, which doesn't make sense since I would have to decline all buyer offers in the first year if that were true.

  • Answer:

    It sounds like you are the builder. If you are only the investor then you put up the money for the builder to construct the spec. home and it would be an investment property to you. As an investor you would have capital gain treatment and your holding period would start on the date that the asset is placed in service. As a builder you either use your own funds or borrowed funds to build the spec house. You use it to show as a model for a period of time and then you sell it. As a builder you could not get to the point where it would be subject to capital gain treatment as it is a property used in your trade or business.

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spec homes are still investment money, no different than any other asset you buy for the purpose of generating profit short term is less than an year an ordinary tax rate(whatever your rate is) long term is a year and more and currently 15% the date you acquired it is the start date, the date you sell it is the end until you make this type of speculation your occupation it is still investment money(some is sweat equity) if you bought the land and did not build on it at all, and eventually sold it it would be a cap gain if you sold if for more than it cost, still investment money

tro

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