Discussion:Land adjacent to residence involuntarily converted

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

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

SDHEA

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

Any further insight would be really appreciated.

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.

SDHEA is correct. see excerpts from RIA to help guide you here. No TAX. Surrounding Land Excludable gain from the sale or exchange of a principal residence can include gain attributable to vacant land provided (1) the vacant land is adjacent to the land containing the dwelling unit of the taxpayer’s principal residence, (2) the taxpayer owned and used the vacant land as part of his principal residence, (3) the taxpayer sells or exchanges the dwelling unit within two years before or two years after the date the vacant land is sold or exchanged, and (4) the Section 121 requirements are met with respect to the vacant land [Reg. 1.121-1(b)(3)(i)]. 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.

Observation: Whether surrounding land is used as part of a principal residence presumably depends on the particular facts and circumstances. Court cases dealing with the former Section 1034 gain deferral rules may be of some use when determining whether the land qualifies. For example, when acreage was not used for business or income-producing activities, nonrecognition of gain on the sale of a residence and a 65-acre tract of land was allowed (Bennett). Similarly, when only 71/2 acres of a 51-acre tract of land was used for a horse boarding and breeding business, the remaining land was determined by the court to be used as a principal residence (Schlicher). The court noted that “residential purpose” may include appreciating nature, living in open spaces, hiking, horseback riding, and enjoying unobstructed views of the countryside.

Example 22B-1: Sale of vacant land qualifies for gain exclusion. In 2004, Michael, a single taxpayer, buys a house on one acre of land that he uses as his principal residence. In 2005, he buys 29 acres of land adjacent to his house and uses the adjacent land as part of his principal residence. In 2008, Michael sells the house and one acre for a $25,000 loss and the 29 acres for a $270,000 gain, in two separate transactions. On his 2008 return, Michael may combine the two sales and exclude the net $245,000 gain.