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How will land sold adjoining my home be taxed?

September 13, 2006


From:  Joe
Date:  Mon, 18 Apr 2006

We owned 18 acres on one plot, not a divided parcel, with a double-wide mobile home. We sold 11 acres on March 13, 2006 and build a house on the remaining 7 acres with the money from the sale. Are we subject to paying taxes on the capital gain, despite rolling the profit into the new house?

The double-wide mobile home was located on the 7 acres that we kept. We gave it away because we couldn’t find a buyer and to avoid the expense of having it moved.

Answer

Date:  Fri, 05 May 2006

Hello Joe,

The old rules of "rolling over" gains from a previously-sold residence were repealed in 1997.

It appears to me the gain for the sale of land in 2006 will be taxable long-term capital gain, to be reported on your 2006 income tax returns.

There is a rule that, if you sell the dwelling unit in a qualifying transaction within two years after the sale of the adjacent land, you can amend the tax return for the sale of the land and claim the exclusion. (Regulations Section 1.121-1(b)(3).)

Good luck!
Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

How will land sold adjoining my home be taxed?

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