Capital Gain on Real Estate

Hoping to find a fellow THPer that's has experience in this...maybe even a CPA or tax attorney.

Backstory:

- In 2004 I inherited a home on 18 acres and made it my primary residence.
- In 2009 I had a survey completed and split the home and 2 acres from the remaining 16 acres. MPC approval was required and parcels became two separate tax parcels.

I still live in the home and care for the entire 18 acres.

I am currently looking to replat the parcels and take 15 acres from the 16 acres and combine the remaining 1 acre with the 2 acres and the home and continue to live in the home and 3 acres but (hopefully) sell the 15 acres to a neighbor.

A colleague told me I should check into a possible capital gain tax on the sale of the 15 acres, according to the chart I found I am in the 15% bracket for long term capital gain tax. I found the following at http://www.irs.gov/publications/p523/ar02.html#en_US_2013_publink1000200611

To exclude gain under the rules in this publication, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale.

Vacant land. The sale of vacant land is not a sale of your main home unless:

• The vacant land is adjacent to land containing your home,
  
• You owned and used the vacant land as part of your main home,
  
• The separate sale of your home satisfies the requirements for exclusion and occurs within 2 years before or 2 years after the date of the sale of the vacant land, and
  
• The other requirements for excluding gain from the sale of a main home have been satisfied with respect to the vacant land.

If these requirements are met, the sale of the home and the sale of the vacant land are treated as one sale and only one maximum exclusion can be applied to any gain. See Excluding the Gain , later.

IMO the first two items apply to my situation as the 16 acres that the 15 acres is coming out of is indeed adjacent to my home and 2 acres (or 3 after new replat) and I current tend to and care for the 16 acres that the 15 is coming out of...does that count as "used the vacant land as part of your main home."

A couple other items:

- the money from the sale of the 15 acres will be used to pay debt (either all of it to my current mortgage or part to the mortgage and part to car loans)
- i spoke to an appraiser who is appraising the 15 acres and he stated he thought capital gain was on a profit. I told him I inherited the land and he said that doesn't mean it wasn't worth anything and he said I could possibly do a retro appraisal back to 2004 and probably find that the land was worth more back then, which would be a capital loss IMO.

Anyway, anyone with experience please chime in. I really have no idea and if no THPer can help I will have to get a CPA or Attorney to look at it as I would need to consider capital gain taxes in my asking price.

Thanks in advance!

"Capital Gains (CG) are on a profit..." That is normally true because normally we purchase something. On a purchase, (generally) the amount you paid is called your Basis. Sale Price - Basis = Profit (or loss). That basic premise applies here, you just have to figure out what your Basis is in the property. I don't know what the law is on that....it could be FMV at time of inheritance, it could be that you inherit your parent's Basis, I just don't know.

Your appraiser is on the right track. You will pay gains on any profit on Thurs value when you inherited the property. If the property has not appreciated you shouldn't owe capital gain taxes. I would still consult a tax consultant or accountant. But unless there is something funky you should be golden.

tequila4kapp said:

"Capital Gains (CG) are on a profit..." That is normally true because normally we purchase something. On a purchase, (generally) the amount you paid is called your Basis. Sale Price - Basis = Profit (or loss). That basic premise applies here, you just have to figure out what your Basis is in the property. I don't know what the law is on that....it could be FMV at time of inheritance, it could be that you inherit your parent's Basis, I just don't know.

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My dad inherited the property so he has no basis and his parents had purchased the land back in 1960...so I'd guess no basis there either, lol :act-up:

Wake said:

Your appraiser is on the right track. You will pay gains on any profit on Thurs value when you inherited the property. If the property has not appreciated you shouldn't owe capital gain taxes. I would still consult a tax consultant or accountant. But unless there is something funky you should be golden.

Click to expand...

Thanks, I will definitely seek more advice from the pros but it makes me feel good that what the appraiser said makes sense to someone else.

You should talk to someone there in Tennessee. Still, I have the question of how you inherited the land.

If you inherited the land through an Estate, your tax basis is it's value as of 2004. If you inherited the land through another device (beneficiary deed, joint tenancy, life estate, etc) then your tax basis would be your predecessors basis.

Talk to someone local who knows the laws in your state and has good tax experience. It's a fairly simple question.

~Rock

Exactly what McRock said. Depending on how you inherited the land will determine what your basis in the land is.

I have a CPA/tax attorney reviewing the situation now so I should have what I need soon. As for inheritance...it was thru an estate. I am an only child and was the executor of my dad's estate as well as sole beneficiary

sparksjr said:

I have a CPA/tax attorney reviewing the situation now so I should have what I need soon. As for inheritance...it was thru an estate. I am an only child and was the executor of my dad's estate as well as sole beneficiary

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It's good that you have a CPA/tax attorney looking at it.

Based on it being through an estate, I believe your basis will be what the FMV was at the time you inherited it in 2004.