Discussion:Land adjacent to residence involuntarily converted

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Discussion Forum Index --> Advanced Tax Questions --> Land adjacent to residence involuntarily converted
Discussion Forum Index --> Tax Questions --> Land adjacent to residence involuntarily converted

CJLCPA (talk|edits) said:

8 October 2009
This is the situation...elderly client had threat of condemnation by City for road project of part of the land on which her home sits. About 1/3 of the land was going to be condemned of her half acre city lot. She reached an agreement with them to pay her $72000 for this land.

Were it not for this money, she would not have to file. SS is her only income. Is there any way to use Sec 121 to exclude this gain? From what I am reading, she has to report it and pay tax and then can amend this 2008 return if she sells her residence with the next two years.

Please help, am I missing something?

Thanks for your time, Carrie

Kevinh5 (talk|edits) said:

9 October 2009
does she have no basis?

Kevinh5 (talk|edits) said:

9 October 2009
also don't forget the lower capital gains rates for those in the 15 and 10% brackets - she might owe very little.

Sdhea (talk|edits) said:

9 October 2009
CHLCPA

partial involuntary conversion of personal residence property can be excluded under Sec 121. Sec 1033(b) & reg1.121-4(d)

SDHEA

CJLCPA (talk|edits) said:

9 October 2009
Her basis is extremely small and very little records exist for the purchase over 50 years ago. Even taking into account the lower rates she still owes about $5k.

I will check out the cites, thanks Kevin and SDHEA!

Any further insight would be really appreciated.

CrowJD (talk|edits) said:

9 October 2009
We involuntarily converted the Indians, and they never got their land back. Your client could be sitting on Indian land, we just don't know.

Now, your client has a $5,000.00 tax bill, and a view of a 6 lane highway out her bedroom window. According to recovery.gov, she's been stimulated.

About the only thing she can do is see if she can get in the newspaper (if you still got a local newspaper), and make the mayor look so bad, he will arrange a fundraiser for her. Make her look as pitiful as you can, and hire a preacher to say what a good churchgoer she is, even if she doesn't go to church. By all means, rent a wheelchair (an old model, not one of these new ones), if you rent it for 3 months, most of the drugstores will throw in a used cane.

P.S. If this happens again, send off to China for some fake indian trinkets and bury them around the site (after filing off the Made in China marks). This will usually get you a 10 year delay while they do an archeological study of the entire area, and buy the lady some time to pass away in peace.

Kevinh5 (talk|edits) said:

9 October 2009
she gets 72K and only owes 5K? Sounds like she won that one! Fair is fair - she got a basketfull of cash and now she owes a cup of it to the taxman.

Southparkcpa (talk|edits) said:

9 October 2009
Fair??? When is the forced sale of a homeowners land fair.... but I digress.

SDHEA is correct. No TAX.

Reg. 1.121-1:

(b) Residence—(3) Vacant land—(i) In general. The sale or exchange of vacant land is not a sale or exchange of the taxpayer's principal residence unless—

(A) The vacant land is adjacent to land containing the dwelling unit of the taxpayer's principal residence;
(B) The taxpayer owned and used the vacant land as part of the taxpayer's principal residence;
(C) The taxpayer sells or exchanges the dwelling unit in a sale or exchange that meets the requirements of section 121 within 2 years before or 2 years after the date of the sale or exchange of the vacant land; and
(D) The requirements of section 121 have otherwise been met with respect to the vacant land.. Only one maximum exclusion of $250,000 ($500,000 for joint filers) applies to the combined gains from the separate sales of the dwelling and the surrounding vacant land.

There's more info/analysis and an example (22B-1) in RIA if you have access to that; mentions the Bennett and Schlicher cases.

this post was reworded by Trillium 10/21/09 to remove info under copyright to RIA

CJLCPA (talk|edits) said:

9 October 2009
Thanks Southpark, but I think the problem is that she likely won't meet provision 3 [C] above. She has been in this house since 1958 and will probably perish there. It's my understanding that she has to report and pay the tax now, then can amend IF provision 3 comes true.

Any other ideas? Thanks again to all.

Harry Boscoe (talk|edits) said:

9 October 2009
Here's another idea: Have your client sell her home and rent it from the new owner for a little while and then buy it back! The exclusion should work for the home *and* the adjacent land, IMO for the time being.

Go ahead, tell me where this doesn't work, but be ready to prove your case. Speaking of case, there's refrigpbrerator...

CJLCPA (talk|edits) said:

9 October 2009
Thanks Harry, that might work but she is 86 and disabled. I doubt she would sell, even if she could find someone to buy it!

Harry Boscoe (talk|edits) said:

9 October 2009
In this forum, we allow ourselves to discuss things even though they might not appeal to our clients. I talk about evasion and fraud sometimes.

Anybody think my idea *wouldn't* work because of something in the law?

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