My primary residence sits on 52 acres of land in South Carolina. Recently, a prospective buyer inquired about purchasing some land. He surveyed off a parcel and we just closed on 10 acres of raw land for $125,000. The closing attorney said he did not need to file a 1099 since the land was part of my primary residence land. Do I need to pay taxes on the gain on this parcel, or does it qualify under the primary residence exclusion since I am selling a portion of my stake in my primary residence? If it does qualify, how do I declare this on my income tax return and how do I exclude it?

ANSWER

The BIDaWIZ Team's Answer:

Based on the information you provided, it is unlikely that the capital gains exclusion for selling a parcel of land can be applied to the sale. There are a set of requirements, one of which is that you need to sell your home within two years of the sale of the parcel of land to claim the exclusion. It doesn't appear to be something that you would want to do. As such, the sale would be subject to taxes and the 1099-S Form would need to be issued. If you're interested, the specific criteria for excluding a parcel of land is as follows:

1) The vacant land is adjacent to land containing your home

2) You owned and used the vacant land as part of your main home

3) 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

We believe, the 3rd point, is the one that causes you to be ineligible for the exclusion.

References: IRC Section 121 and IRS Publication 523
State: South Carolina