How much acreage can a taxpayer include as part of his “residence” for sale of personal residence exclusion? Taxpayer has an active farm on 80 acres raising grain & hay. He & his wife originally built their house on a few acres that his wife inherited from her father over 25 years ago. Shortly thereafter he purchased the remaining contingent acreage from an unrelated party to start his farming operations. Like many farmers he has worked a regular job (construction) for many years in order to help support his growing family. The farm has generally contributed a significant portion of the total family income. After 25 years of farming he plans on selling both the house and the farm through an auction. He is considering whether he should “package” the house and a portion of the surrounding acreage in a separate parcel from the rest of the farm acreage or sell everything as a single parcel. Any acreage that he could include as part of the residence would of course save on the capital gains tax he would incur on the farm land sale. Local restrictions on farm land parcels require a minimum of 20 acres per residence to discourage subdividing and housing development of farm land. Would such a restriction be a controlling factor in the taxpayer’s favor to allow at least a minimum of 20 acres to be included as part of his residence? Could he make a case for a large portion of the acreage as part of his residence? Any other suggestions?
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