Lot sales connected to residence

[Kram BergGold]

My client had an oversized city lot. He was able to subdivide it making a lot with his house on it and two more. He is now trying to sell the two lots. Can he claim section 125 on them? He has no intention of selling the lot with his residence on it for quite some time.

[Corduroy Frog]

Don't Think So

Kram, don't think your section# is correct, also don't think he can exempt this as a residence sale.

Would love to hear from others on this, in case someone may be aware of a court case or something deep within the regulations.

I just don't think he can claim that these two lots are part of his residence, when he obviously doesn't need them or intend to use them to live on.

[Luis Mopeo]

My client had an oversized city lot. He was able to subdivide it making a lot with his house on it and two more. He is now trying to sell the two lots. Can he claim section 125 on them? He has no intention of selling the lot with his residence on it for quite some time.

I agree with the Frog. I believe there was a court case a few years back where a residence and adjacent land was subdivided in order to facilitate the sale and that was treated as a sale of one residence for the exclusion rules, but the entire residence and land were sold.

As soon as your client subdivided the lots with the intent of building new houses, that property stopped being part of the principal residence and became investment property. Also, the exclusion isn't going to be available unless the principal residence is sold, which is not happening here.

[taxfun]

Sales of adjacent lots

Somone on another site quoted Croker v. Commisisoner, 12 BTA 408 (1928)
as allowing such even though subvision had taken place.

[joanmcq]

He can take Sec 121, but only if the principal residence is sold within 2 years of the sale of the land. If he changes his mind about the house, he would amend to use the exclusion on the land as well.

[Luis Mopeo]

I may have misunderstood the question. When you said "He was able to subdivide it making a lot with his house on it and two more," I took that to mean he built another house on each of the two lots. Is there just one house?

Then it can be subdivided, but all must be sold within two years.

[Kram BergGold]

thanks everyone

Your answer about having to sell the house within 2 years of the lot sales is right on. I knew there was some catch but I could not access that part of my brain.

[solomon]

This is clear

in Examples 3 and 4 of Reg. 1.121-1(b)(3)(c)(4).