what tax on pre-construction condo - Posted by Wolfgang

Real Estate Investing Real Estate Law
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Posted by Wolfgang on August 27, 2004 at 22:12:52:

I checked now w/ 2 CPAs. Both said cap gains.

Here is a good explanation from one of them:

"In general, everything owned for personal or investment purposes is a capital asset. Of course there are exceptions but your condo construction contract doesn’t fall in the list of exceptions assuming that you are not in the business of buying and selling these contracts.

See IRS Pub 544, Sales and Other Diispositions of Assets for more detail on capital asset exceptions.

Report your sale on Schedule D as you would the sale of a stock option. "

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what tax on pre-construction condo - Posted by Wolfgang

Posted by Wolfgang on July 06, 2004 at 17:25:26:

I’d like to assign a contract on a condo before I need to close. Scenario:

June 2004 - contract signed, downpayment made.
Oct 2005 - building ready for occupancy

Between July 2005 - Sept 2005, I plan to assign.

On the appreciation, I hope I’ll be taxed capital gains (15%), not income tax.

Is that correct ?

Thanks,

Wolfgang

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Re: what tax on pre-construction condo - Posted by Dave T

Posted by Dave T on July 19, 2004 at 21:21:14:

Just my opinion. Your assignment fee is ordinary income taxed at your ordinary income tax rate.

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Re: what tax on pre-construction condo - Posted by Jimmy B. Dickson

Posted by Jimmy B. Dickson on July 20, 2004 at 06:32:16:

If I hold a preconstruction contract for over 12 months and sell an assignment to another person, what is my income tax consequents?

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Re: what tax on pre-construction condo - Posted by Wolfgang

Posted by Wolfgang on July 20, 2004 at 21:02:57:

Dave T:
thanks. I believe it should be treated like a stock option which is taxed capital gains. Contract on pre-con property is very much an option - a right, not an obligation to close. Of course, it’d be silly not close unless funding/financing became an issue. I guess I need to bother my CPA.

Jimmy:
depending on income earned, it’s progressing from 0% (below $8k per year) to 35% (above $326k per year). More on

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Re: what tax on pre-construction condo - Posted by Dave T

Posted by Dave T on July 21, 2004 at 10:13:22:

Wolfgang,

Your observation about options is correct, because an option is considered a capital asset. The question for your attorney and your CPA is whether your contract is a capital asset or personalty.

I believe the latter, which makes your assignment fee ordinary income regardless of your contract holding period.

Come back and tell us what you learn from your professional advisors.