sale of property

[gman]

Taxpayer owns personal residence and 35 acres. Taxpayer is selling to daughter at arms length transaction. Taxpayer will get exclusion for sale of principal residence, but I am not sure how to handle the sale of the land. Taxpayer has not used the land for anthing in the past 5 years, but previously had cattle on it.

Any suggestions

[Nashville]

Schedule 4797

Gman, don't think 35 acres will fly as a residence.

I heard once a guy sold 43 acres and went to court and beat the IRS, but I could not begin to confirm this. If this happened, it would certainly be the exception and not the rule.

If the client finds himself in a position where he must PROVE he was not using the land, see if he has a 1099-CCC from USDA where he had some of his acreage in a soil bank and hence had to let his ground lie fallow.

Remember, the capital gain portion of the 4797 is only at 15%, and be sure and add the undepreciated value of any structures that were on the land.

[Lion]

How did he use it

How did he use the land during the last five years? Recreation, hunting, ATV riding, volleyball courts, painting the sunsets, relatives pitching tents, building a septic system to serve the residence, digging a well to serve the residence, any personal use at all? Or just held for investment? Or still residual farm use? I would think a 1099-CCC would indicate farm use, since he would get money from the government for holding land he otherwise presented to them as intending to farm. Is it one property or subdivided? What was his intent for the land for the last five years, and what evidence does he have for that intent?

[Davc]

How did he use the land during the last five years? Recreation, hunting, ATV riding, volleyball courts, painting the sunsets, relatives pitching tents, building a septic system to serve the residence, digging a well to serve the residence, any personal use at all? Or just held for investment? Or still residual farm use? I would think a 1099-CCC would indicate farm use, since he would get money from the government for holding land he otherwise presented to them as intending to farm. Is it one property or subdivided? What was his intent for the land for the last five years, and what evidence does he have for that intent?

Good answer.

[Jiggers]

Ag value on land?

Here in Texas there is FMV of the land and AG value. The land is then taxed at AG value, considerably lower than FMV.

To keep the AG value he had to be doing something in agriculture. This could be putting the land in the land bank. He could also be renting the land out for farm use.

You need to check that before allowing 35 acres for the residence.

Also, the fence around the land was probably depreciated. You will have to allocate some of the selling price for this. And recapture as 1245 property.

[veritas]

Is land adjacent to

the residence?

If the land was not used for business purposes in the last 5 years I would certainly be inclined to use it as part of the residence.

[OtisMozzetti]

Gain on Residence vs. Gain on the Land Portion

If the gain on the residence portion of the property exceeds the $250K/$500K exclusion, then it is somewhat **moot** whether to to lump in the gain on 35 acres of cattle grazing land (idle land for the most recent 5 years) in with with the overall gain. It comes out long-term gain, or else 1231 gain, which are taxed pretty much the same 15%.

(With 1231 gain, there ARE obscure potential issues concerning nonrecaptured 1231 losses from the past 5 years.)

If there is gain on the residence; AND the gain on the residence is less than the $250K/$500K exclusion; and there is also some gain on the surrounding 35 acres land formerly used for cattle grazing, then as noted by a previous posting the IRS might get unhappy about seeing so much gain on farming business land get classified as gain on a main home.