How much capital gains tax will I pay selling a house I built myself?

I've been working on a custom home build for the last three years and I'm thinking about selling it once it's complete. The market in my area is doing really well right now and I could probably get around $3.1 million for it. My total investment in the land and construction is about $1.1 million, so I'd be looking at roughly a $2 million profit if I sell. I'm trying to figure out how much I'll get hit with in capital gains taxes. This isn't my primary residence - I've been living in my other house while building this one as an investment. I know there are different tax rates depending on how long you've owned the property, but I'm confused about when the clock starts ticking - when I bought the land or when I finished construction? Also, does it matter that I've been actively building it myself rather than just holding land? Anyone have experience with capital gains on a self-built home sale? What kind of tax bill should I be expecting? Would I be better off moving into it for a while before selling?

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20 comments

Lydia Santiago

•8M

You're looking at long-term capital gains tax since you've held the property for more than a year. The clock starts ticking from when you purchased the land, not when you completed construction. For 2025, long-term capital gains tax rates are 0%, 15%, or 20% depending on your income bracket. With a $2 million profit, you'll likely be in the 20% bracket. You might also be subject to the 3.8% Net Investment Income Tax if your income is above certain thresholds. Since this isn't your primary residence, you won't qualify for the Section 121 exclusion (which allows you to exclude up to $250K/$500K of capital gains on a primary residence). If you moved in and made it your primary residence for at least 2 years out of the 5 years before selling, you could potentially take advantage of that exclusion.

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Lydia Santiago

•8M

Great question. Yes, certain labor costs can be added to your cost basis, but there are specific rules. If you personally did the work, you can't add the value of your own labor to the basis. However, any materials you purchased and any contractors you paid can be added. Make sure you've kept detailed records of all expenses related to the build - materials, permits, contractor payments, architectural fees, etc. These all increase your cost basis and will reduce your taxable gain. If you've been tracking your expenses properly, your actual cost basis might be higher than the $1.1 million you estimated.

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Val Rossi

•8M

I went through something similar last year and discovered taxr.ai (https://taxr.ai) which helped me figure out my exact capital gains liability. I had built a vacation cabin and wasn't sure how to calculate my basis properly with all the different expenses over several years. The tool analyzed all my receipts, bank statements, and construction documents and identified thousands in deductible expenses I would have missed! It even flagged some improvements I made to the land before building that I didn't realize could be added to my basis. Saved me a ton in capital gains taxes.

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Val Rossi

•8M

It doesn't add any value for your personal labor - unfortunately the IRS doesn't allow that. But it does capture all material costs, even if you installed them yourself. So all those electrical supplies would count toward your basis even though your labor doesn't. The tool gave me very specific advice. It analyzed my actual documents and highlighted which expenses qualified to increase my basis and which didn't. It even flagged some things I should discuss with my CPA that were in gray areas. Way more detailed than general guidelines.

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Clarissa Flair

•8M

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•8M

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•8M

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•8M

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Rudy Cenizo

•8M

For a 1031 exchange to work, the property must have been held for investment or productive use in your trade or business. If you built it specifically to sell, the IRS would likely consider you a "dealer" rather than an "investor," and the property would be considered inventory, not an investment property. In that case, a 1031 exchange wouldn't be available to you, and the profits would likely be treated as ordinary income, not capital gains. This could potentially result in an even higher tax rate. This is definitely something you should discuss with a qualified tax professional who specializes in real estate, as the specific facts and circumstances will determine your tax treatment.

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Nina Fitzgerald

•4M

With a $2 million profit on this scale, you definitely need professional help. I'd strongly recommend getting both a tax attorney and a CPA who specialize in real estate transactions to review your situation before you sell. A few things to consider beyond what's already been mentioned: 1. **Dealer vs. Investor Status**: Since you built this specifically to sell, the IRS might classify you as a dealer rather than an investor. This would mean your profits get hit with ordinary income tax rates (up to 37%) plus self-employment tax, rather than the lower capital gains rates. 2. **State Taxes**: Don't forget about state capital gains taxes if you're in a state that has them. Some states have no capital gains tax, while others treat it as ordinary income. 3. **Estimated Taxes**: With a gain this large, you'll likely need to make quarterly estimated tax payments to avoid underpayment penalties. 4. **Timing**: Consider the timing of your sale. If you're already in a high-income year, it might make sense to delay the sale to the following year to manage your overall tax bracket. The potential tax bill on $2 million could easily be $500K+ depending on your situation, so spending a few thousand on proper professional advice is a no-brainer. Don't try to navigate this alone with software or generic advice.

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