Value of home on farm sale

[HBurkholder]

How do you value the home portion of a farm for the 121 exclusion? I have heard suggestions to use the tax records which in this case would seem to over value the home as the value is in the land. The purchaser is buying the farm for mining purposes and will probably over time demolish the buildings on the farm. I am inclined to have an appraisal done on the home and a few acres around the house. Has anyone ever been questioned or audited on one of these situations?

This then raises another question. The farm was under contract about a year before settlement. Should we use the value at time of contract or at time of settlement. Home prices have declined 7-10% in the area in the past year.

[Nashville]

If you have records....

...you can probably answer the question from prior year returns.

For prior year returns, have you been filing a Schedule F? Have you been apportioning 80% of the taxes and interest to the farm? If so, what basis rationale have you been using?

In the above example, it's hard to support anything over 20% for the residence.

I have clients who want to take 80% of their property taxes as a farm deduction (one of them to breed race horses, no less). But then when they sell, they want to take 80% of the sales proceeds as the Sec 121 exemption...

[Davc]

In OR and I suspect most states, farmland is assessed at a much lower value relative to FMV or RMV than houses and other land. Thus, it is not proper to use the same % for mortgage interest as is used for property taxes.

[taxxcpa]

Valuation

How do you value the home portion of a farm for the 121 exclusion? I have heard suggestions to use the tax records which in this case would seem to over value the home as the value is in the land. The purchaser is buying the farm for mining purposes and will probably over time demolish the buildings on the farm. I am inclined to have an appraisal done on the home and a few acres around the house. Has anyone ever been questioned or audited on one of these situations?

This then raises another question. The farm was under contract about a year before settlement. Should we use the value at time of contract or at time of settlement. Home prices have declined 7-10% in the area in the past year.

I had this situation on a tax return once. I took the tax assessment which distinguished between the land and the improvements. I then had to do some further allocation of improvements and finally came up with a ratio which I used to apportion the sales price and the basis.

[taxea]

Value of home on farm sale

The State has control over what portion of the farm is "personal residence". In Hawaii this portion is .5 acre. Property tax on this portion is at FMV. This is not mandatory but rather how the income/expense of the farm is treated when the property does include a personal residence.taxea