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I have sold a home we built on an adjoining lot that

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I have sold a...

I have sold a home we built on an adjoining lot that previously contained a garage carriage house. Can I get a deduction from the sale proceeds for the cost of building an equivalent structure on our property?

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We sold a house on an adjoining lot to our principal residence this year. The lot contained a garage - carriage house we used. We now need to build a new garage - carriage house on our remaining property. Is this deductible as a part of the costs we are reporting as capital gain? Jim R.

Submitted: 6 months ago.Category: Tax
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11/27/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 6 months ago
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Tax Professional: Tax.appeal.168, Tax Accountant replied 6 months ago

Q: Is this deductible as a part of the costs we are reporting as capital gain?

A: In brief, the answer is no. The building of the new structures is a separate matter from the capital gains. If you have incurred a gain on the sale of the home, that gain would have to be reported. As this property is personal-use property, building another property, like-kind or otherwise will not eliminate or reduce the gains. Most people think they have incurred a gain, when they actually have not. In order to determine if you incurred a gain, you start with the cost basis of the property (purchase price or cost to build, plus improvements). If the home was sold for more than the cost basis, you incurred a gain. For less than the cost basis, you have incurred a loss. The sale is reported on the Schedule D and the Form 8949. If you find that you have actually incurred a gain, again, you are not able to reduce it because you will build new structures.

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