Mortgage Free House

Mortgage Free House

From: Joe

If my wife and I built a home with me acting as general contractor, could we sell it later? Do we have to live in it first?
Joe




Hi Joe,
Yes, you can sell it but, in order for you and your wife to benefit tax wise,
it has to have been your primary residence for at least 24 months prior to selling it.

Homeowners should know about the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing jointly).

To be eligible for this tax exemption benefit, home sellers must have owned and occupied their principal residence at least 24 of the 60 months before its sale.

Millions of home sellers use this tax break each year.



You could as an owner/builder saving 25%, in theory, use this tax exemption to have a mortgage free house by repeating this process every 24 months. Here's how:

• Build a sound, well-located house.
• Move in, making it your principal residence for at least 24 months.
• Sell the house at a tax-free profit. (not more than $250,000 or $500,000 for qualified spouses).
• Repeat every 24 months.
• Build the same house (so that you know the cost) on a comparable lot, in a comparable area, reducing the amount you need to borrow by the profit from each sale, and in 8 years, you could have a Mortgage FREE house.



If however, you live in it less than 2years, you may be subject to Capital Gains. But hey, capital gains (profit on the sale of a capital asset) receive a more favorable tax treatment than regular income.

Depending on your tax bracket and on how long you held an asset before selling it, you may pay about one-third to one-half less tax than you would have paid on the same amount if you had earned it as salary.

As with all taxable transactions, you should consult with a tax EXPERT before you make any decisions.

You should be aware that the IRS could consider these multiple transactions an actual business and tax you accordingly.

Good luck,
Carl