Moving my family into a project house. Plan, or mistake?

Run a service business, five years in, and I've spent those five years inside other people's renovations without ever owning one. Now there's a 1960s split level near my kids' school, $315k, needs a kitchen, one bath gutted, all new flooring, and the basement smells like something I don't want to name yet.

We currently rent for $2,300. Payment on this at 10% down would run about $2,750 all in. Renovated splits in that pocket have gone $415k to $430k.

The idea is we move in, I do the work over about two years using my own crew on their slow weeks, and then we sell and the gain isn't taxed because we lived there, which as I understand it is the whole reason people do this.

What I don't know: whether two years of my kids living around a gutted bathroom is a cost I'm just refusing to put on the spreadsheet, and whether using my own crew on a house I own creates a mess with how I pay them and how I account for it. I've never mixed the business and a personal property before.

Wife is neutral leaning skeptical. Offer deadline is Friday.

Answer

1ryanmck27SC2C

The tax part you described is roughly the mechanism, so I'll just fill in the shape of it. The primary residence exclusion generally lets you leave gain out of income if you owned the home and lived in it as your main home for at least two of the five years before the sale, up to $250k if you file single and $500k married filing jointly. It isn't automatic paperwork magic, you have to actually meet both tests, and your accountant should confirm how it lands for your filing situation before Friday if you can get them on the phone.

The crew question is the one I'd worry about more. Paying your own company to work on your own house has real bookkeeping consequences and it's a question for your CPA, not a forum.

3 replies

1diane_kowalskiPassivePRO9

The basement smell is $315k with an unknown attached. Get someone under there before Friday or move the deadline.

1hannah_west29 Get yours

Your numbers say the gap between renting and owning is $450 a month, which is $10,800 over two years. That's the easy part and it's fine.

What's missing is the reno cost. You listed a kitchen, a gutted bath, all flooring, and an unnamed basement issue, and you didn't give a dollar figure. If that's $70k, your basis is $385k plus closing and you're selling into $415k to $430k, so the spread is $30k to $45k before selling costs of maybe $25k. That deal is roughly break even and the tax exclusion protects a gain you didn't make.

You run a service business so you know what those four items cost better than I do. Put the number in the post. Everything else in this thread is guessing until you do.

And count your crew's hours at your billable rate even if you never write yourself a check. Free labor is the assumption that makes bad live-in flips look good.