Capital gains exclusion when splitting property sale

May 18, 2008 2 Replies
C

Greetings,



We are selling our home of the last 15 years. The overall gain will not exceed the $500K cap gains exclusion limit for a couple. We are in the process of dividing the property into two tax lots, one with the existing house, the other bare land. We have two scenarios for the sale of these lots:


  1. Single buyer purchases both lots - I assume (perhaps wrongly) that in this case we figure the cap gains as if we'd sold the original single lot as a whole. Yes?


  1. Two buyers, each buying one lot - Are we able to avoid cap gains tax if we do this?



Please advise and many TIA.


- Casey



========================================= MODERATOR'S COMMENT: If your two sales are within 24 months of each other, you can apply the 500,000 exclusion to the total sale of the two contiguous properties.


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C

How would one handle the split transaction on one's tax returns if the two sales were spread over more than one tax year? I mean besides having to allocate the original basis between the two properties, how do claim the exclusion? Would you claim it twice or would you have to not claim it on the first sale and then claim it over both properties when the second was sold?

TIA.

Casey

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The exclusion is applied first to the dwelling unit property, with any leftover amount applied to the sale of the lot. If the lot is sold first any gain is fully taxable, requiring an amended return if it later meets the requirements for exclusion.

The Regulation section is 26CFR § 1.121-(b)(3).

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