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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Tax

If I sell part of my homestead will I pay capital gains I ...

If I sell part of... Show More
If I sell part of my homestead will I pay capital gains? I have owned the property for five years. I did a 1099 from a rental property, I have already sold a portion before and paid no capital gains.
Submitted: 8 years ago.
Category: Tax
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replied 8 years ago.

I did not understand what you mean by I did a 1099 from a rental property? Did you buy this property via 1031 exchange from sale of your rental property?

Have you owned and used the property(including the adjacent vacant land) for your primary residence purposes?

When did you sell the portion before and not pay any capital gains? Was that gain excluded as you used the property as your primary residence?

Customer reply replied 8 years ago.
Reply to RD's Post: I did a 1031 exchange for both parcels five years ago. I then moved onto the property and used both parcels for personal use(homestead)
I sold a portion of the larger parcel three years ago and paid no capital gains at that time.
I have both parcels under homestead tax. Both are used as my homestead. I do have a boarding stables on my small parcel with my home as well and grow hay on the larger parcel.
RD, Certified Public Accountant (CPA) replied 8 years ago.

Normally to claim exclusion from capital gain you need to use the property as your primary residence. If you sell the property that you have owned and used for atleast 2 years than you can exclude gain of upto $250K ($500K if married filing jointly).

Note that

The home sale exclusion also includes gain from the sale of vacant land if that is adjacent and has been used as part of the principal residence, if the land sale occurs within two years before or after the sale of the dwelling unit. The land must be adjacent to land containing the dwelling unit, and all requirements of Section 121 as discussed above must be satisfied.

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

Customer reply replied 8 years ago.
I bought the larger parcel 5 years ago for 550K. The smaller for 400k five years ago. They are adjacent to each other.Three years ago I sold a portion of the larger parcel for 151K and paid no capital gains.
I am now selling another portion for $400k. I will attach the remaining land to my other parcel which has my house on the parcel.
I am single so I understand I get a 250k exemption every two years as long as I have lived on the property and used both for personal use. ( I am a realtor so I am a little familiar with real estate tax laws)
Will I get a $250k exemption plus excluding the original purchase price and any improvements made?
Customer reply replied 8 years ago.
I am not clear on your answer could you read my additional question?
Thanks!
RD, Certified Public Accountant (CPA) replied 8 years ago.

Yes, you will ge tthe exclusion but only if you sell your primary residence too as discussed in the earlier post. You cannot sell the land and claim exclusion of the capital gain on the sale of land unless you sell the primary residence too in the 2 year period thereafter. The same rules applied to the sale that you made earlier if the sale was of vacant land So the exclusion of gain on that sale may also be questionable should IRS examine it in detail.

See IRS regulations - Sec 121 para (3) in the link below -

http://edocket.access.gpo.gov/cfr_2007/aprqtr/26cfr1.121-1.htm

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

Customer reply replied 8 years ago.
Reply to RD's Post: I dont plan on selling my home on the smaller parcel. IF I sell the portion of land can I at least exclude the purchase price and any improvements of the parcel before I am taxed? Will it just be a personal income tax? At what tax rate?

Thanks!
Customer reply replied 8 years ago.
So, If I purchased the land for 550K sold some for 150K and now more for 400k I shouldnt have to pay tax because there is actually no gain?
RD, Certified Public Accountant (CPA) replied 8 years ago.

You will have to allocate the cost of the land to the portion of the land you are selling. You cannot allocate the entire cost to the land since you will own part of the property after the sale.

Your gain will be the selling price minus selling expenses minus the prorated cost of the land and the improvements made thereon.

The gain will be long term and subject to tax upto a maximum of 15% and hence the maximum tax you will pay on the gain is 15%.

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

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