section 121 exclusion

[Unregistered]

Ok hope you can all help.

Client currenlty owns a house which he has lived in married for the last 10 years as primary residence.

He is moving into new house this year 2006 and is going to rent current house out for 9 months .
After 9 months he will demolish house subdivide property into three parcels build three houses and sell all three within two years.

This is all happening on the house which he has lived for 10 years as primary residence.

Question :
Is he entitled to a section 121 exclusion of 500k once he sells the three houses that sit on his old primary residence?

I know he qualifies for 121 if he sell out right or even rents for 9 months he gets reduced 121 amount. But what happens once he tears down house , is 121 lost? Or does he get the whole amount less rental portion.

Thanks for your ideas , and I am aware of the clause that one can sell say raw land attached to primary and still qualify for 121, this I think is a little different.

Thanks again,
toomuchtime

[veritas]

It would seem to me if you don't have a personal residence (because it has been torn down) then you aren't selling your personal residence so no exclusion.

Secondly the exclusion is not reduced for the 9 months the home is rented. You must recapture the depreciation at time of sale.

[Unregistered]

It would seem to me if you don't have a personal residence (because it has been torn down) then you aren't selling your personal residence so no exclusion.

Secondly the exclusion is not reduced for the 9 months the home is rented. You must recapture the depreciation at time of sale.

You are correct I mis-stated . I meant recapture of depreciation.
Veritas,
So your theroy goes then land is not part of personal residence? Is it the house which by definition makes it your personal residence?
No home no perosnal residence?

thanks,
toomuchtime

[jainen]

not just a theory

>>your theory goes then land is not part of personal residence<<

It's not just a theory, it's in the regs. Land can only be included if it is sold within two years of the dwelling unit. Would you like to argue that the dwelling unit was sold to the salvage company?

[solomon]

Demolition

He does not get a 121 exclusion if he demolishes the rental. Demolition increases basis of the land.