Sale of Property - Partial

[S T]

Client owns commercial real estate where he operates a retail busiess location. Approx 1.93 Acres. City approached him to acquire approx 2830 sq ft of this property, (land only no improvements/bldg) and will pay $ 67,519 for the land + $ 6,783 as Easement costs, and then reimburse him $ 167,748 per a bid for re-landscape to the property he is retaining.

Question: The land sale of $ 67.519 would receive capital gain treatment - The $ 6,783 Easement amount would receive ??? tax treatment, the $ 167,748 for re-landscaping would receive ???? tax treatment.

Thanks,

Sandy

[BHoffman]

Client owns commercial real estate where he operates a retail busiess location. Approx 1.93 Acres. City approached him to acquire approx 2830 sq ft of this property, (land only no improvements/bldg) and will pay $ 67,519 for the land + $ 6,783 as Easement costs, and then reimburse him $ 167,748 per a bid for re-landscape to the property he is retaining.

Question: The land sale of $ 67.519 would receive capital gain treatment - The $ 6,783 Easement amount would receive ??? tax treatment, the $ 167,748 for re-landscaping would receive ???? tax treatment.

Thanks,

Sandy

Hi Sandy

I think the Land + Easement = Sales price, see Pub 551. Easement costs are capitalized and added to basis.

What would be the FMV of the land being purchased by the City if the buyer was a private party? Would it be: Land + Easement + Re-landscaping costs?

[taxmom34]

what a sweet deal ! didn't realize land was worth so much in NC, what with all the real estate values spiralling down. I bet if it were a private sale it wouldn't be that much.
just my opinion

[S T]

Calif Prop

This happens to be a client of mine in California - City wanted it pretty bad, so client was able to negotiate the costs of re-landscape on the portion that he is retaining, that the City is "requiring" that he do.

That is the question on tax treatment of the amount allocated to the compensation for the landscaping??? The amount is based on a bid that was obtained and the City approved it.

Sandy

[BHoffman]

This happens to be a client of mine in California - City wanted it pretty bad, so client was able to negotiate the costs of re-landscape on the portion that he is retaining, that the City is "requiring" that he do.

That is the question on tax treatment of the amount allocated to the compensation for the landscaping??? The amount is based on a bid that was obtained and the City approved it.

Sandy

I'll give this a bump.

I think the Fair Market Value of the Land if sold to a private party (instead of the City) is an important number.

I'd say that if the FMV of the land if sold to a private party is Land + Easement + Landcaping, then treat the entire amount received as though that is the sale price. Treat the cost of the Landcaping as a capitalized asset. I could be mistaken

If the FMV of the land is less, then how do we treat the difference?

1. Treat the reimbursement as ordinary income, and capitalize the landscaping costs?

2. Apply the reimbursement against the landscaping costs so it washes out?

3. Treat the reimbursement as part of the sale price and use it to determine capital gain?