Sale of a Spec house

[MeadowYak]

I'm embarrassed to say I'm a little at a loss. My client subdivided a lot from a rental property he has and build a spec house. Sold it in early 2020 and made a good chunk of change of the deal...like $240k. On top of his regular job as a realtor he now has a huge tax bill.

What I'm trying to figure out is if I can assign any value to the land that he subdivided as an expense. He bought the rental with the sub dividable lot 5 years ago for $250000. The site value then was 80000. He split the lot in half, so can I prorate out a portion of the land's site value from that original purchase as an expense against the sale price of the spec house and then adjust the 'basis' of that property?

Thanks in advance if you have a minute to steer me in the right direction.

[ATSMAN]

I have not done a tax return with a sub divided lot lately but in the past I took the valuation of the entire parcel and divided by the size of each lot. In our area you need at least a 1/3 of an acre to build a new house (old houses and other exceptions exist). And I know this works because when the developer applies for building permit the tax assessment after completion is based on the value submitted by the county.

[lkaz]

MeadowYak what you described is what I would generally do. Just keep records showing how you arrived at that number and have the client do the same.

[Burke]

You are right on track. If he divided the lots 50/50 then 50% of the original land basis is attributable to the spec home sale.