Expert: liznarr - 3/15/2008

Question
We have lived in the same house for 34 years on 24 acres.
20 acres are in orchard where the trees were completely depreciated by the early nineties.  All of the depreciated trees have since been cut down because of disease and change in the market.  The cost of growing the new trees planted were claimed each year and no new depreciation was ever set up.  The property, because of land use laws cannot be subdivided or have the house seperated from the orchard.  The farm was sold for 800000 with 80000 basis. Can I claim the the entire 500000 exclusion against the sale price of the house and orchard and only pay capital gains on 220000 of the gain?

Answer
Hi Keith,

My general understanding of capital gains is that a married couple, having lived in and claiming a home as their PRINCIPAL residence for three of the last five years, can claim up to $500,000 of gain with no taxes due thereon.  As you pointed out, there could be additional tax consequences and/or considerations in view of your depreciation issues.

Since your question is more of an accounting question, and I am not qualified to give accounting advice as I am not a licensed CPA.  I would suggest contacting a CPA in your area or a CPA expert on the All Experts site for a qualified answer to your question.

Good luck to you, and write again if you have a real estate question I can help with.

Regards,
Elizabeth