Sale of Vacant Land

[veritas]

I was kind of disappointed today while looking up rules on exclusion on sale of residence. I wanted to confirm the exclusion rules might apply to adjoining vacant land to personal residence. In my case the vacant land was sold prior to the principal residence. Had to find the answer in Quickfinder.

[Snaggletooth]

QF Source

This is disappointing to hear, if this is true.

...and Veritas, thy name is Truth.

I always thought the IRS wouldn't paint itself into a corner on land adjoining a residence, but echoed with the old, familiar "facts and circumstances" dogma. Don't have last year's QF in front of me, but one interesting question would be whether this answer was in the book last year. If so, wonder how it got there...

Veritas, visit our board again often, please.

Regards, Ron Jordan

[Brad Imsdahl]

Making decisions on coverage

Thank you very much for bringing this to our attention. You are right, adjoining vacant land sold separately from a principal residence was not covered in TheTaxBook. We may consider including that information in next year’s edition.

In fact, there are other examples where information included in our competitor’s publication did not make the cut in TheTaxBook. There are, of course, other numerous examples where you will find information included in TheTaxBook that is not covered in our competitor’s publication. In making decisions on what information to include and what not to include, we have to make judgment calls on whether it is a common issue or an obscure issue. Obviously, you cannot include everything in a 482 page book. But we do listen to feedback, and a very important aspect of this message board is to listen to what the tax preparer community is interested in.

For example, the number one topic that has been discussed on this message board and others is the new uniform definition of a qualifying child. We spent a great deal of time trying to get that one correct. The IRS was late with the 1040 instructions this year, and it would have been irresponsible for us to release the section on that topic prior to seeing the 1040 instructions. We actually held back on printing for that very issue. Making adjustments to our print schedule is a policy our company feels very strongly about. We will do everything in our power to make sure the most important information is covered correctly in our publication.

Again, thank you for your feedback.

[Brad Imsdahl]

HOH rules

For example: The 1040 instructions on page 17 under the Head of Household rules, #2a. says any person whom you can claim as a dependent (qualified for HOH). But does not include…(ii) any person who is your dependent only because he or she lived with you for all of 2005…

This is similar to how TheTaxBook presents the rules on page 3-13.

This rule is to prevent someone who is considered to be a qualifying relative under the dependency rules from giving you head of household status when they are not really related to you. For example, say you take in your long lost high school buddy who is down and out without a job. He lives in your home the entire year and does not have any income. He qualifies as your qualifying relative under the dependency rules. But you can’t use him for purposes of getting Head of Household status because of the rule above.

[Redneck]

Answer

Don't keep me in suspense and keep me from looking it up. What's the answer to the sale of vacant land before the sale of the residence. Thanks

[Gene V]

vacant land

Don't keep me in suspense and keep me from looking it up. What's the answer to the sale of vacant land before the sale of the residence. Thanks

The sale of vacant land is not a sale of your main home unless
The 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 the vacant land have been satisfied.

See Pub. 523 for more information.

[Unregistered]

Here you go...

On December 23, 2002, the IRS issued final regulations relating to the exclusion of gain from the sale or exchange of a principal residence pursuant to § 121. The final regulations address a variety of issues, and several items of particular interest are outlined and summarized below.
1. Exclusion of Gain from the Sale or Exchange of a Principal Residence
The regulations reiterate the general rule under § 121 that a taxpayer may exclude up to $250,000 ($500,000 for certain joint returns) of gain realized on the sale or exchange of the taxpayer's principal residence if the taxpayer owned and used the property as a principal residence for at least two years during the five-year period ending on the date of the sale or exchange. The regulations specifically address "principal residence" issues and vacant land.
a. Principal residence
The final regulations provide that the residence a taxpayer uses a majority of the time during the year will ordinarily be considered the taxpayer's principal residence. However, the regulations do include a non-exclusive list of factors that are relevant in identifying a property as a taxpayer's principal residence. The factors include place of employment, location of family members, address on tax returns, driver's license, auto registration, voter cards, mailing address for bills and correspondence, location of banks, and locations of religious and recreational affiliations. Presumably, these factors and other facts and circumstances could be considered in determining that a property used less than a majority of the year was nevertheless a taxpayer's principal residence for that year.
b. Vacant land
Commentators requested clarification of the circumstances in which vacant land surrounding a residential structure would be treated as part of the residence for purposes of the exclusion. Under § 1034 and former § 121 (pursuant to several IRS rulings and tax cases), a sale of vacant land that did not include a dwelling unit did not qualify as a sale of the taxpayer's residence. However, the sale of vacant land and a replacement residence as part of a series of transactions that all occurred within two years (before or after) the date of the taxpayer's purchase of a replacement residence were treated as one sale.
The final regulations take a similar approach and apply § 121 to a sale or exchange of vacant land owned and used as part of the taxpayer's principal residence if the sale or exchange of the dwelling unit occurs within two years before or after the sale or exchange of the vacant land. The regulations require that the vacant land be adjacent to land containing the dwelling unit and that the sale or exchange of the vacant land otherwise satisfy the requirements of § 121. Only one maximum limitation amount of $250,000 ($500,000 for certain joint returns) applies to the combined sales or exchanges of the vacant land and dwelling unit. The regulations include special rules to deal with sales or exchanges that occur in different taxable years.

[Unregistered]

I was kind of disappointed today while looking up rules on exclusion on sale of residence. I wanted to conform the exclusion rules might apply to adjoining vacant land to personal residence. In my case the vacant land was sold prior to the principal residence. Had to find the answer in Quickfinder.

The number one topic that has been discussed on this message board and others is the new uniform definition of a qualifying child. We spent a great deal of time trying to get that one correct.

For example: The 1040 instructions on page 17 under the Head of Household rules, #2a. says any person whom you can claim as a dependent (qualified for HOH). But does not include…(ii) any person who is your dependent only because he or she lived with you for all of 2005…

This is similar to how TheTaxBook presents the rules on page 3-13.

A number of sources this year missed that.