Sale of home and rental acres

[JenMO]

Client sold home with acres they had been renting out for cash rent( and reporting on a Sch E). There was no depreciation taken, as there was nothing on the land to depreciate. Does this make the acres a captial asset subject to tax and unable to be included in the home sale for the exclusion? Or can I exclude the whole sale, MFJ and gain under $500,000

[Lion]

Federal Tax Regulations,regulation,§1.121-1.Exclusion of gain from sale or exchange of a principal residence

(3) Vacant land

(i) In general .—
The sale or exchange of vacant land is not a sale or exchange of the taxpayer's principal residence unless—

(A)
The vacant land is adjacent to land containing the dwelling unit of the taxpayer's principal residence;

(B)
The taxpayer owned and used the vacant land as part of the taxpayer's principal residence;

(C)
The taxpayer sells or exchanges the dwelling unit in a sale or exchange that meets the requirements of section 121 within 2 years before or 2 years after the date of the sale or exchange of the vacant land; and

(D)
The requirements of section 121 have otherwise been met with respect to the vacant land.

[Koss]

Land Sale

I don't think that can be excluded.

There's a small loophole, somewhere, that allows you exclude gain on the sale of vacant land that is adjacent to your home, if you used the vacant land as part of your primary residence. But your client doesn't fit that pattern.

BMK

[JenMO]

That's how I look at it also, but (through the grapevine) I hear of sales that go thru tax free, mostly because they are under the $500,000 gain limit, even if not land used personally. Personal land, in some cases, can encompasses a lot. But, I don't believe, either, my case qualifies, needed a reinforcing opinion. thanks