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How will property without a residence be taxed?

September 13, 2006


From:  Pete
Date:  Fri, 28 Apr 2006

We purchased a home site in 2000, but never built the home. Now we want to sell the property, which has appreciated considerably over the past three years.

Answer

Date:  Fri, 05 May 2006

Hello Pete,

Your gain for selling the property will be a long-term capital gain, qualifying for the 15% federal tax rate. (California gives no break for capital gains. For most taxpayers, the applicable tax rate is 9.3%.) Since the property was never used for a residence, the gain won’t qualify for the exclusion of gain from the sale of a principal residence. If you are interested in tax-deferral, you could plan a tax-deferred exchange to invest in a different piece of real estate.

If you live in California, you could have 3 1/3% of the sales price withheld for as a prepayment of California income taxes.

Hope this helps.

Good luck!
Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

How will property without a residence be taxed?

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