Tax implications on flipping a house we've owned for 30 years

[Caleb Walters]

We are going to sell an old house that has been in the family for years.  It's a tear-down property.  I am running the numbers on the idea of tearing it down and rebuilding it myself, then selling the new construction.  The biggest unknown for me is the tax implications.  I understand how the equity in the house will be treated if we sell it today without any work.  If we completely tear it down and rebuild (which will require a construction loan over $500k), will this change our tax treatment?