BobKamman
Level 15
12-07-2024
03:01 PM
- Mark as New
- Bookmark
- Subscribe
- Permalink
- Report Inappropriate Content
@Terry53029 Yes, you are limited to selling one primary residence every two years, even if two homes are sold in one transaction. But that is not the question here. @qbteachmt found the right Regulation, which says you cannot sell acreage along with a home unless it was used as part of the principal residence. Those of us outside Minnesota who are not IRS auditor wannabes will take the taxpayers here at their word, that the home was on 15 acres, and keep reading that same Regulation to find examples of how this works:
Example 4.
In 1998 Taxpayer D buys a house and 1 acre that he uses as his principal residence. In 1999 D buys 29 acres adjacent to his house and uses the vacant land as part of his principal residence. In 2003 D sells the house and 1 acre and the 29 acres in 2 separate transactions. D sells the house and 1 acre at a loss of $25,000. D realizes $270,000 of gain from the sale of the 29 acres. D may exclude the $245,000 gain from the 2 sales.
In fact, they could have sold some of the acreage in one year and the house itself in the following year, and still qualified:
Example 3.
In 1991 Taxpayer C buys property consisting of a house and 10 acres that she uses as her principal residence. In May 2005 C sells 8 acres of the land and realizes a gain of $110,000. C does not sell the dwelling unit before the due date for filing C's 2005 return, therefore C is not eligible to exclude the $110,000 of gain. In March 2007 C sells the house and remaining 2 acres realizing a gain of $180,000 from the sale of the house. C may exclude the $180,000 of gain. Because the sale of the 8 acres occurred within 2 years from the date of the sale of the dwelling unit, the sale of the 8 acres is treated as a sale of the taxpayer's principal residence under paragraph (b)(3) of this section. C may file an amended return for 2005 to claim an exclusion for $70,000 ($250,000-$180,000 gain previously excluded) of the $110,000 gain from the sale of the 8 acres.
It probably helps that I was around 20 years ago when a friendlier IRS was interpreting new Code sections from a friendly Congress. So, I vaguely remember something was issued to address these situations, perhaps because some Member of Congress had a cousin whose situation matched the facts. The lesson for newcomers to tax research is to proceed from the top down, not from some AI beta version. Read the Code section. Then read the Regulations. Maybe you won't have to go any farther.
