divide home and sell, gain exclusion?

[jpkramer1]

Hi All,

I have a client who bought several condo units and combined them to make one big home. It is their primary residence.  They decided to divide one lot and sell it. They meet all criteria for home sale gain exclusion, but can they take it in this case? They used the lot as part of their primary residence, but they will remain at the same (now smaller) address. Do we think they can exclude the gain?

Thanks!

[Terry53029]

To qualify for the 121 exclusion you have to sell your main home at a gain. Selling lots does not count.

If building was attached to land, maybe:

(3) Vacant land -

(i) In general. The sale or exchange of vacant land is not a sale or exchange of the taxpayer's principal residence unless -

(A) The vacant land is adjacent to land containing the dwelling unit of the taxpayer's principal residence;

(B) The taxpayer owned and used the vacant land as part of the taxpayer's principal residence;

(C) The taxpayer sells or exchanges the dwelling unit in a sale or exchange that meets the requirements of section 121 within 2 years before or 2 years after the date of the sale or exchange of the vacant land; and

(D) The requirements of section 121 have otherwise been met with respect to the vacant land.

[jpkramer1]

The condo lot was part of their main home. They put walls back that had been previously knocked down in order to sell the unit separate.

[qbteachmt]

This has been asked Twice, and is also being answered here:

https://proconnect.intuit.com/community/practice-advice/discussion/divide-and-sell-home-gain-exclusi...

It's better to have your topic only once, so that the volunteers can see who else is participating and giving you guidance.

[qbteachmt]

The word "lot" here is = the group that has been bundled together, as in a Lot Sale.

[Terry53029]

Sorry, but I'm not understanding (old school 😁). You say lot, then you say putting up walls. To me a lot is land, and you don't put walls up on land. Could you explain what you mean when you say lot

[jpkramer1]

It's similar. They bought up several adjacent condo units in a building and knocked out walls to make it one big condo. Now they just sold of one of the condo units separately after separating it from the other units (putting walls back). So this sold unit was part of their primary residence for years.

[TaxGuyBill]

It sounds to me that it is a partial interest sale.  

If that is the case, that means they do qualify for the exclusion, BUT when they sell the rest of the house their exclusion will be reduced by the amount they claimed for this sale of the partial interest.

See Reg 1.121-4(e).

https://www.law.cornell.edu/cfr/text/26/1.121-4

[Terry53029]

Ok, it sounds like they are eligible for a partial exclusion. Be sure they keep track of the amount, as they will have to subtract that amount in case of a future sale. Also be sure they meet all the requirements in pub 533