Tax Law (Questions About Taxes)/taxes on sale of land

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Question
I own house and 4 acres on 1 deed.  Want to subdivide and sell off 3 acres of land to a developer. Will keep house as is primary residence. Don't plan on selling house in near future. Will the sale of the land-only be considered a long-term gain, short term, or straight out income to be taxed in the year of sale?  Understand if sold all as one deal we could use the capital gains waiver up to first $500,000 in  profit, is this correct?  Owe $180,00 on present mortgage. Want to pay off house and see how much actual profit will walk away with after taxes. We live in Maryland.  Thank you very much for your time and expertise.

Answer
Hi Terrie,

You are correct in that is everything is sold in one deal you can use the $250,000/$500,00 exclusion if you meet the tests.

You cannot use the exclusion on the sale of the vacant land itself *unless* you intent to, and do sell your primary residence within 2 years either before or after the sale of the vacant land.

I would classify the sale of the land as long term capital gain as long as you held it for one year or more.

See Page 3 of IRS Publication 523 here: http://www.irs.gov/pub/irs-pdf/p523.pdf


Take care,

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Bruce W. Tyler, EA

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I can answer questions with regard to the following: Preparation/Tax Law regarding Individual Income Tax (IRS and California), Audit Representation/IRS Procedures of personal and corporate income tax including appeals, IRS Collection procedures for individuals, partnerships and corporations, Offers-in-Compromise, Installment Payment Plans, Penalty Abatement,Income from Cancellation of Debt. Heavy experience with Public Safety (i.e. Firefighters, Police Officers, Correctional Officers, etc) as well as medical industry.

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