I bought 80 acres of agricultural land with an old house and a few outbuildings 20 years ago for $32,000. The land I am selling is titled as part of the original 80 acres and I reside in Kansas. Right now the land is part of my agricultultural operation and I use it for cattle pasture. I do have my primary residence on the 80 acres. A young couple would like to buy 7 acres off the corner we use as pasture for our cattle so they can build a residence. They are paying $15,000 for 7 acres. Is there capital gains tax in this situation and, if so, how do we calculate it?

ANSWER

Expert Edward Wilmsen's Answer:

 Establish the cost basis of the buildings at the time of the land purchase. Subtract that amount from the purchase price of the land. If the home was built after the land purchase, don't count it. So for example if the outbuildings had a value of $2000 20 years ago, then the basis of just the land would be $30000. The basis of the 7 acres would then be $30,000 X 7/80 or 8.75% X $30,000 = $2,625. Your capital gain would then be the purchase price of the 7 acres minus the cost basis of the 7 acres or $15,000 - $,2625 = $12,375

Edward Wilmsen, CPA

Illinois

30 yrs experience

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