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Capital gains on modular home sale
Posted on 5/6/21 at 10:30 am
Posted on 5/6/21 at 10:30 am
I'm currently under contract on a property that has two residences on it. One is a house that I plan on living in, and the other is a modular home. I'm financing the property temporarily as a commercial investment property to allow for the sale of the modular home, and later convert to a conventional 30 year fixed rate mortgage. My question is how will the sale of the mobile home be taxed in regards to capital gains? From my understanding the gains would be taxed at my normal tax rate due to being short term, but how would the taxable amount be determined?
2
Posted on 5/6/21 at 10:33 am to sultanofswing
"live" in it for 2 years and sell it gain free.
-this is not tax advice
-this is not tax advice
Posted on 5/6/21 at 10:42 am to Mingo Was His NameO
I'd thought about going that route, but I'm looking to get it converted to the 30 year fixed rate sooner than later due to rates starting to creep up. I just don't think I can get the property financed on the secondary market with it having multiple residences. I may be able to get it financed on a more traditional product, but the difference between a 3.00% secondary market rate and 4.00% conventional is substantial over 30 years. Interest savings over time would more than make up for any capital gains paid on the sale of it.
Posted on 5/6/21 at 12:42 pm to sultanofswing
quote:
? From my understanding the gains would be taxed at my normal tax rate due to being short term, but how would the taxable amount be determined?
What you sell it for less your basis.
The basis is the thing. You have basis in the entire property (land plus two residences) and initially it is your purchase price. You would then need to allocate a portion of the basis to the modular home (and the land for it, if you are selling a piece of land as well).
How quickly are you flipping the modular home? If quickly, perhaps you could argue that there was no increase in value, and thus, no gain?
If you are selling the modular home pretty quickly after the purchase of the entire property, I would argue that
Posted on 5/6/21 at 12:59 pm to LSUFanHouston
That was about in line with what I was thinking. Planning on selling the modular as soon as I close on the property and it will be moved off of the property. Other than if there was specific value given to it on the appraisal, or if I went to the trouble of getting a NADA valuation report, I would think sales price of the modular would indicate the actual fair market value. That would create a scenario like you said to where it could be argued that there is no need to pay capital gains. My only concern was that I was planning on using the sale proceeds of the modular for some remodeling expenses on the house, but wanted to make sure I stuck enough of the money back to pay the potential taxes.
Posted on 5/6/21 at 1:32 pm to sultanofswing
quote:
My only concern was that I was planning on using the sale proceeds of the modular for some remodeling expenses on the house, but wanted to make sure I stuck enough of the money back to pay the potential taxes.
If the scenario is as you said, and there is no gain, it still has to be reported. But, no income = no tax due.
We do the same thing with inherited property that is sold quickly after date of death. We use the selling price as FMV for date of death, which establishes basis, which basically means no gain or loss, or possibly a small loss if there selling expenses such as commission.
Just remember to deduct that basis allocation from your records of the basis of the main home/land.
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