I assume you are not living in one of the units? This would
give you $250K - $500K exemption when you sold it after
living in it for 2 years.

All the investment units have a basis equal to or
approximately based on the amount of money you put into the
entire property divided by 3. Adjustments can be made for
size differences, amenities (penthouse, private garden,
etc.)or specific improvements made to each unit.

There is the possibility that you will own one of the units
for the one year necessary for long term capital gain
treatment. If you do this kind of thing frequently, you may
be classified a real estate sales person marketing inventory
instead of an investor selling capital assets.

Linda Dorfmont E.A, CFP ,CSA

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Miles Freedman <mfreedman[at]getconnected.com> wrote:

- quote -

I think you're in the business of converting buildings, so
it's ordinary earned income, not capital gains.

- quote -

Yes, but not necessarily equally; there are lots of ways to
allocate (for instance, if the two new kitchens cost $50K
each, you might allocate them to the condos they're in;
likewise, the initial cost can be allocated based on
apartment size, etc.)

- quote -

No.

Seth

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I purchased a 3 family house back in February. I'm
converting the building into 3 condominums for resale. I
realzie that since I have not owned the building for a year,
that profit would be taxed at my normal income rate.

My question is, what is considered profit and when does it
need to be declared? For instance. Say I paid $300k for the
building. I put $150k into improvements. My cost basis is
$450k.

I sell unit 1 for $200k. Do I have to split up the purchase
price and improvements on this unit to come up with my
profit? (i.e. $300/3 ($100k purchase price) $150k/3 ($50k
improvements)). That would make my basis for this unit
$150k. This would give me a profit of $50k. So I would have
a $50k short term profit to pay taxes on.

...or can I structure it so that I only pay taxes when I have
surpassed my initial outlay for the entire building?...for
expample $450k is my cost basis for the building, I sell
unit 1 for $200k...my basis is now $250k...I sell unit 2 for
$200k my basis is now $50k...I sell unit 3 for $200k, now I
show a $150k profit and pay the taxes on it (by now, perhaps
a year has gone by and I only owe 15% long-term capital
gains tax).

Thanks for any help on this...I want to do what is allowed
by law, but saves me the most in taxes...

Miles

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