I am a new user and am having trouble figuring out how to correctly enter our housing situation. We currently own some land that we may build on in 2011 for a vacation home. How do I enter the value of the land already owned? And then enter a purchase price and mortgage for the home? Thanks for the help!
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deezimmerman at comcast.n wrote:I am a new user and am having trouble figuring out how to correctly enter our housing situation. We currently own some land that we may build on in 2011 for a vacation home. How do I enter the value of the land already owned? And then enter a purchase price and mortgage for the home? Thanks for the help!
The easiest thing is to think of as if you already own a vacation home that you haven't built.
In 1st vacation home, enter the cost of the land, taxes and any other costs associated with the land. Whatever the value of the land is in today's dollars, use it. There won't be any real growth in the value of the land (for your purposes).
In 2011, you're going to "sell" the land, and "buy" a vacation home. The new vacation home has a total cost of, for example, 400K. 100K of that is the land, 300K is the new house, total value of the land + house = 400k. Say you have 60K in your building fund, so you're getting a 240K mortgage and making a 400K purchase with a 140K down payment.
You may have to fudge these numbers a little. Since taxes are paid on nominal dollars, you may have to enter a -3% growth rate (roughly the default inflation rate) for the property you currently own to hold the value constant in nominal dollars (loosing value because of inflation) to avoid the tax hit when you "sell" the property in 2011.
There are probably other ways, hopefully other folks with chime in.
Best,
Dick Munroe
Thank you so much for your response. I considered this approach, but I get messed up in the "First Change of Vacation Home." Where can I enter total cost of home (in your example, 400K)? I only see purchase price. If I enter total cost in this field, it will miscommunicate what I need to pay for this home, as the land is already owned.
deezimmerman at comcast.n wrote:Thank you so much for your response. I considered this approach, but I get messed up in the "First Change of Vacation Home." Where can I enter total cost of home (in your example, 400K)? I only see purchase price. If I enter total cost in this field, it will miscommunicate what I need to pay for this home, as the land is already owned.
No, it won't. The change in vacation home, forces the "sale" of the first vacation home (the land, thus you need to make sure that you don't accrue any gains in the value of the land so you don't pay any taxes on a transaction that doesn't happen). You enter the total of the new home plus land as the purchase price, the balance of the mortgage you will be getting with the new home, and the difference is the down payment for the newly built home including the land. There's a bogus looking transaction floating around but it doesn't matter since done correctly there aren't any tax issues.
Best,
Dick Munroe
I get it. Had to run it with your numbers first because they were easier to work with. Thanks for the help!