Sale of a Personal Residence

[Mike12321]

Client sold home built in 1970 on 30 acres of land for $750,000. 

How much acreage is allowed with the homestead to claim the exclusion on sale of a personal residence?

Can they claim the entire property as part of their home?

Client is 90 and does not know exactly the cost basis of the house they built. 

[dd4vols]

If the house and 30 acres are one parcel of property, i would certainly say it all was available for the 2 year residency exclusion. But, I'm having a little trouble understanding the first sentence.   So did the 30 acres of land and the cost of the house build equal $750,000? or did he buy the 30 acres of land for $750k, and can't remember the house cost?

[dkh]

Home sold for $750,000... ?   How much of the 30acres ?

[rbynaker]

What was done with the 30 acres?  Farming?  Timber?  Billboard rental?

[BobKamman]

Depends on the facts and circumstances.  Was it in Manhattan, New York, or Manhattan, Kansas?

When you say "they," does this mean a couple hoping to get the $500K exclusion?  So it's just a question of whether it's one parcel or two?

[Mike12321]

Thank you for replying to my post.

The proceeds of the sale of the house & land was $750,000. From looking at other posts and pub 523, and 26 CFR § 1.121-1 - Exclusion of gain from sale or exchange of a principal residence. | Electronic Co..., it does sound like the entire property can be treated as personal residence eligible for the exclusion. The owner did not have any type of business use of the land and considered it part of their home.

[Mike12321]

This was one sale of the entire property with the house.

I was just concerned about whether or not a portion of the land had to be considered separately.

For example, for some property tax credits for RE taxes a homestead is limited to 5 acres.

However, it appears that in this case the entire property is eligible for the exclusion.

[Mike12321]

The land was wooded, and not used for any commercial purpose.

[Mike12321]

I think I was concerned as a preparer about reporting the transaction correctly. I was also worried if they would incur a large tax liability for the sale, if they had to report some of the land separately. However, the house was designed by an architect, so it was an expensive home.

[sjrcpa]

Expensive home is relative.

Where I live, a custom built home on 30 acres is way over $1 million.

But I agree it can all be treated as sale of principal residence.

[IRonMaN]

In my neck of the woods, a home with 30 acres wouldn't be that uncommon.  The folks that don't want to live in any of the huge cities of northern Minnesota will have homes in the country with that kind of acreage so they have some elbow room from their neighbors.

[George4Tacks]

Where I live a home on 2 1/4 acre sold for $5,525,000. Can't hardly get a small condo for $1M

But I never shovel snow. 

Just in case they want to reinvest out West here is the property

https://www.redfin.com/CA/Fremont/600-Monticello-Ter-94539/home/1971770

P.S. I had a friend who purchased his home and the lot next door at the same time with intentions of enlarging. Enlarging failed and he sold the adjacent lot using IRC 121, adjusting his basis on the remaining home for the gain  on that sale. 

[qbteachmt · Accepted solution]

Issues of homestead property tax are local. Typically county and some will be state, provisions. Not IRS. The IRS only cares about primary residence, and any land that was being treated not as part of the residence, such as timber sales or tree farm, because there is going to be income tax reporting history that separates that land from the residence.

I don't see where you ever answered the issue of if this is a couple, a widower, someone was a co-owner who died (common law or community property state) and I don't see any comments about if you checked with the County records.

You might be surprised at what is stored at the county. In general, there might be a building permit that included the projected value of the project. I was recently researching a FL property where my client was the second owner, but owned since 1967. All the records were available online, because FL is a disclosure State, unlike Montana.

[BobKamman]

@IRonMaN  Elbow room from the neighbors is always good, especially when the neighbors come down with Covid.  

[IRonMaN]

30 acres is just about right to keep someone out of COVID range from their neighbors.

[Mike12321]

Thank you for clarifying the difference between the IRS and the local tax authorities. Also I appreciate the heads up about looking up the building permit for the projected value of the property.

This was a couple that moved into assisted living.

In this area of the country property is not that expensive.