New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
Bankrate.com
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Equity
Auto CDs &
Investments
Retirement Checking &
Savings
Credit
Cards
Debt
Management
College
Finance
Taxes Personal
Finance

George Saenz, the Bankrate.com Tax Talk columnistAvoiding short-term gain on new property

Dear Tax Talk,
I have a preconstruction contract for the purchase of a condominium that I contracted for over a year ago. Now I have to close, but I don't want the unit so I want to sell it. If I sell the unit, do I have long-term gain or short? The contract is in my name or an entity that I control, so I can't sell the contract.
-- Emily

- advertisement -

Dear Emily,
I assume you stand to gain some money from this and, if it is substantial, then you definitely want to shelter the gain as long-term. Long-term capital gain is taxed at 15 percent while short-term capital gain is taxed at ordinary income rates, which can be as high as 35 percent. Unfortunately, though, since you can't sell the contract, your holding period starts over when you close on the condominium.

Publication 550 states:

To figure how long you have held real property bought under an unconditional contract, begin counting on the day after you received title to it or on the day after you took possession of it and assumed the burdens and privileges of ownership, whichever happened first. However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. The holding period cannot start until there is an actual contract of sale. The holding period of the seller cannot end before that time.

This means you cannot tack on the time that you held the contract since that is a different property: a contract interest versus a title interest. This is kind of unfair since all the appreciation you will realize is from the time you held the contract, which is over the one-year qualification for long-term gain.

However, if the gain is substantial, you may want to consider structuring a deal with a closely held entity to realize long-term gain. Since under the terms of the contract you can only assign the contract to an entity you control, you'll have to have the right structure in place to obtain the long-term gain. A qualified CPA or tax attorney can help you set up the right structure, as there are very complex rules and regulations that will have to be adhered to in order to obtain the desired result.

Bankrate.com's corrections policy-- Posted: Feb. 3, 2006
Read more Tax Adviser columnsAsk a question
 RESOURCES
Tax consequences of flipping real estate
Real estate profitable but risky game
Sign up for free newsletters!
 TOP TAX STORIES
June 15 filing deadline for some
Find the tax professional who's right for you
Coming up with tax cash


Compare Rates
NATIONAL OVERNIGHT AVERAGES
30 yr fixed mtg 4.45%
48 month new car loan 3.77%
1 yr CD 0.89%
Rates may include points
Mortgage calculator
See your FICO Score Range -- Free
How much money can you save in your 401(k) plan?
Which is better -- a rebate or special dealer financing?
VIEW MORE CALCULATORS
- advertisement -
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here.

Bankrate.com ®, Copyright © 2014 Bankrate, Inc., All Rights Reserved, Terms of Use.