Tiny Houses and Capital Gains Taxes

I was investigating the consequences of selling the tiny house and ran across something.

If the sale of the tiny house is treated as a capital gain, then I need to consider whether it is a short term or a long term gain. According to the Turbo Tax site, you must own the asset for over one year to be considered a long term gain.

A short term gain is taxed at the 35% rate while a long term gain is taxed at 0-15% depending on your tax bracket. So if the tiny house sold for $15K, we be talking about a tax liability of $2275 (assuming cost basis of $8500) if I sell it before February 22nd or $975 if I sell it after.

That kinda seems like a good reason to hold on to it for another month to let it become a long term asset. And until I sell it, I can continue to depreciate it as business property. When I either sell it or move in to it, I’ll have to stop the depreciation.

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2 Responses to Tiny Houses and Capital Gains Taxes

  1. Michael JanzenNo Gravatar says:

    Hmmmm… This never occurred to me but then I’m not a tax guy. You might want to chat with a pro.

    One thought though. I would assume that a tiny house you build to sell wouldnt bs an asset but a business expense recorded on your schedule C. So it wouldn’t be capital gains, it would be net sales minus costs, right?

  2. LouisNo Gravatar says:

    Without having talked to a pro, I think it can be characterized either way. If you buy a car, fix it up and then sell it, you’re supposed to report it as a capital gain. If you’re a used car dealer and you do that, I believe it’s a depreciable business asset. If you build a car from scratch then the supplies are probably a business expense.

    If you treat it as a business asset, then the question is do you pay yourself for the labor involved and give yourself a 1099? At first glance, I’d think income is taxed at a higher rate than capital gains so probably not. I think in grey areas like this, the IRS waits to see how you characterize it and then taxes you accordingly – kinda like whether you opt to deduct specific expenses on your vehicle or straight mileage.

    I’ll ask a tax person about this when I get my taxes done this year and see what the considerations are.

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