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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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We sold our main home in 2006,There was a 1/2 acre lot next ...

Customer Question

We sold our main home in 2006,There was a 1/2 acre lot next to it that the buyers of our house wanted. they ended up paying for the lot in 2007.Can we have the lot as part of our house sale in 2006 and not pay any gains on its selling in 2007
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

Adjacent lands to a main home may be inlcuded in the sale of a home,but unfortunately not backwards in time. If the lots were not part of the sale at closing in 2006, and the lots were sold seperately in 2007, they are treated as a seperate sale and not part of the home.

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 5 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
So it would not matter that they agreed to buy the extra lot in 2006,but had to wait until 2007 to pay for it.
Customer: replied 6 years ago.
Also,if I have to pay capital gains how do I put a value on the land when it was bought so I know the difference
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

That is correct. The reason is that as individual tax payers, we are on cash accounting. It would be extremely unusual to find someone on accrual accounting as an individual. The IRS consideres all individual tax payers on accrual accounting unless you file documents indicating otherwise.

as cash basis, you can only count the sale as of the closing date, even if the contract for sale was established in the previous year. It is the date you closed on the sale.

NOTE: it is not possible to change your basis of accounting from cash to accrual after you have already filed taxes. IN order to change from a cash to accrual method you need to get the permission of the IRS. It can have very disasterous affects for your taxes, especially in the year of change. One you make the change, the IRS is likely not to allow you to make another change back. Individuals should never be on an accrual basis, because most current tax law for individuals is based on cash accounting.

to figure capital gains you need to use the fomrula:

capital gains = sale price- (orginal cost of property to you, + any closing costs from your original purchase which you were not able to deduct previoulsy, + improvements and major repairs) - cost of sellling.

How much did they pay for it?

What did you pay for it when you bought it? or how did you acquire it?

Customer: replied 6 years ago.
They paid $110,000 for the 1/2 acre
We bought it as part of 1 1/2 acres with the house on it for $155,000 back in 2000. We sold the house on 1 acre in 2006 for $355,000
Expert:  Ed Johnson replied 6 years ago.

Dear powder dog,

Ok lets unwind this thing.

Tell me, was the 110,000 part of the 355,000?

THEN tell me this, what figure did you sue to figure you capital gains?

Here is what we have to do.

We have to apporti the sale of the home with one acre form the original 1.5 acres. The land does have value, and unless you have a seperate appraisla that lists seperately the land (1.5 acres and home as improvements), you will have to use property tax records as a basis for the apportionment.

When determinign you capital gains for the home sale to apply the exclusion, you should have apaportioned the land anyway.

 

Customer: replied 6 years ago.
1. No the 110,00 was not part of the 355,000.
The 355,00 was for the 1 acre and the house.
When I did 2006 taxs I subtracted the 155,000 from 355,000 for capital gains,but we had the eximtion for being in the house over 2 years so I paid no capital gains.
There was never any seperate appraisal for the 1/2 acre.
In June of 2006 the Real property tax statement(what we paid taxs on) had the real market value at $36,360.
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

You will have to apporition the cost basis to the 1/2 acre based on the property tax assessment for the year in question of when you purchased the property. The assessor should have an online report that will show the histoic values or you can get a report from thier office; you may also have a property tax bill and assessment notice in your prior year tax records.

Then just do the schedule D for this 1/2 acre seperately.

Your capital gains tax will be not more than 15%.

 

Customer: replied 6 years ago.
Thank you
Expert:  Ed Johnson replied 6 years ago.
You are welocmeCustomer best of luck to you.

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