sale of vacant land adjacent to home qualifying for home sale exclusion

[JeffCPA]

Married couple filing jointly sell a one acre vacant tract of land which is immediately adjacent to and used as part of the primary residence for 100,000 on 08/24/2020.   Married couple then sell their primary residence itsself and all remaining acreage in March 2021.   IRS publication 523 makes it clear that this initial vacant land sale, and the later sale of the residence cannot be treated as one sale of the primary residence and apply the home sale gain exclusion rules.   My question is how to actually report this when these sale events occurred in two different tax years. 

I found conflicting things online.  One says that you should report the sale of the vacant land (which occurred first) as a capital gain event, pay the tax, and then in the next year when the home sells, go back and amend the prior years return and get a refund.   I found something different which says if the primary residence sells before the tax filing due date for the year that the vacant land sold then you do not have to report the sale of the vacant land in the year it happened.   Thoughts. 

[qbteachmt]

"and used as part of the primary residence"

You call it both "used for residence" and Vacant. Is the home on it, or is it vacant?

[JeffCPA]

Yes, I see what you are saying my language is not clear.  I was trying to track the language of IRS publication 523.  

The one acre tract of land is vacant.   It is part, of the overall acreage, and land on which the primary residence is located.  

A section a Publication 523 says the following:

"You can linclude the sale of the vacant land adjacnet to the land on which your home sits
as part of a sale of your home if ALL of the following are
true.
•
You owned and used the vacant land as part of your
home.
•
The sale of the vacant land and the sale of your home
occurred within 2 years of each other.
•
Both sales either meet the Eligibility Test or

So, the IRS Publication refers to the vacant lot "being owned and used as part of your home."   That is odd wording, but it has to simply mean that this vacant is simply considered part of the overall grounds and land on which someone's primary residence is located, and that is not a vacant lot tha tis used for some other purpose.  

So, this lot is vacnat, and it was sold first last August, and now just a few weeks ago, the home and other acreage were sold.   My question is more about whether I should be reporting this vacant lot sale separately, right now, when it clearly qualifies for being piggyback onto the sale of the home, and the home exclusion. 

[qbteachmt]

Great; that helps. I love the articles I find on the web. Here's one that explains it for "house before land" and "land before house."

https://www.nolo.com/legal-encyclopedia/tax-exclusion-vacant-land-around-home.html

[TaxGuyBill]

You report the sale of the land, and report it as qualifying for the exclusion. 

[rbynaker]

The authority is actually in the Regs.  See 1.121-1(b)(3)(ii)(C):

https://www.law.cornell.edu/cfr/text/26/1.121-1

Assuming the combined gain is not over the limit, I would report the land sale and exclude the gain on the original 2020 tax return.  I would also attach a preparer note referencing the regulation above and indicate how much of the exclusion amount will be allocated to the 2021 sale.

Probably overkill, but I really love answering IRS inquiries with "as stated in the note attached to the tax return . . . <copy><paste>"

Rick