Plan Selling Lot


D

Dannie

Purchased personal home no business in 1957 which at that
time resided on a 100 * 200 corner lot. Only structure was
the home, no garage etc. and one deed. Several years ago I
engaged attorney to have the land split (2 lots 100 * 100
with the house on one lot and the other lot is plain
ground). Had to apply for subdivision in our town which
required new map etc. and subdivision was granted by town
and all this was recorded in county deed book etc..

A developer has made an offer for the empty 100 * 100 but
that's it right now. With talk about the revised capital
gains law change I am in a quandary as to what to do, but I
want to start the planning process.

1. How do I establish original land price in absence of any
figures other than purchase price in 1957?
2. Does the date of the subdivision enter in when it became
a separate parcel? The costs associated with the lot are
Taxes (separate tax bill), and mowing the grass etc..

What tax form would the buyer be required to supply me? He
has already mentioned creative buying with him giving me so
much this year and the balance next year. Of course my goal
in this is to minimize the federal taxes.

Any information and advice would certainly be appreciated.
Thank you
Dannie
 
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P

Paul A. Thomas

Purchased personal home no business in 1957 which at that
time resided on a 100 * 200 corner lot. Only structure was
the home, no garage etc. and one deed. Several years ago I
engaged attorney to have the land split (2 lots 100 * 100
with the house on one lot and the other lot is plain
ground). Had to apply for subdivision in our town which
required new map etc. and subdivision was granted by town
and all this was recorded in county deed book etc..

A developer has made an offer for the empty 100 * 100 but
that's it right now. With talk about the revised capital
gains law change I am in a quandary as to what to do, but I
want to start the planning process.

1. How do I establish original land price in absence of any
figures other than purchase price in 1957?
Your cost basis of the land is that portion of the purchase
price that would be allocated to the land (as opposed to the
house) and half of that (because you're selling half the
land).
2. Does the date of the subdivision enter in when it became
a separate parcel? The costs associated with the lot are
Taxes (separate tax bill), and mowing the grass etc..
The date you subdivided it is not a factor.
What tax form would the buyer be required to supply me? He
has already mentioned creative buying with him giving me so
much this year and the balance next year. Of course my goal
in this is to minimize the federal taxes.
Since it doesn't seem to be part of the sale of your home,
you will pay tax at the capital gains rate. It's worth your
while to run scenarios for taking the money now (and paying
tax on all the gains now) or taking installment payments and
paying the tax over the life of the payments.

The factors that are important are your current other income
(income from other sources than the sale) and your future
other income.
 
E

Ed Zollars, CPA

Dannie said:
A developer has made an offer for the empty 100 * 100 but
that's it right now. With talk about the revised capital
gains law change I am in a quandary as to what to do, but I
want to start the planning process.
Key question--do you plan to sell the other piece of
property (the one with the house on it) within two years of
the date you would sell the vacant land? If your answer is
yes, you may want to consult with a competent local tax
professional about the potential application of Regulation
1.121-1(b)(3) to this transaction, assuming you meet the
other requirements of that provision.

If you don't sell the other piece of property within two
years or the use of that lot doesn't otherwise meet the
tests in the above regulation, it appears that the gain
would normally be taxable. In that case we go on to your
questions.
1. How do I establish original land price in absence of
any figures other than purchase price in 1957?
The original purchase price from 1957 needs to be divided
between the two pieces of property. Realize that you have
an improved and unimproved lot, so we'd expect more of the
cost to be allocated to the improved lot than the unimproved
one, but obviously the exact facts of the situation would
control.

Most likely you would need to make some rational allocation
at this point. A real estate professional could probably
hazard a guess at what percentage allocation would work if
you bought the property today, though you'd have to control
for whether the facts are now different than they were back
in 1957 (for instance, there may have been no market for the
vacant lot back then if the property was "out in the
country" and no developments were nearby).
2. Does the date of the subdivision enter in when it became
a separate parcel? The costs associated with the lot are
Taxes (separate tax bill), and mowing the grass etc..
That's likely not a tax issue except to the extent that the
costs incurred in splitting the lot that were not deducted
on your tax return (the legal fees for instance) would add
to basis. Most likely the maintenance would not do so and,
more to the point, if you did claim they were investment
expenses it could very well be held against you if you sold
your residence within two year and then tried to claim the
exlcusion on the sale of the vacant land.

That is, to take a deduction for those expenses, you'd have
to take the position it was property held for investment and
not personal use property (losses are blocked on personal
use property). Well, if it wasn't personal use then, to me
at least, it appears to create problems arguing that you met
Regulation 1.121-1(b)(3)(i)(B)'s requirement that you used
the property sa part of your principal residence.

While you may have no current plan to sell your house, if
you *did* so within the two years you may find the deduction
for mowing the lawn could become a very expensive deduction
What tax form would the buyer be required to supply me?
The buyer would report the sale on a Form 1099 that would
report the gross sales price.
He
has already mentioned creative buying with him giving me so
much this year and the balance next year. Of course my goal
in this is to minimize the federal taxes.

Any information and advice would certainly be appreciated.
If the amount is signficant, I would *strongly* suggest
seeking out the counsel of a local tax professional *before*
you execute the deal. There are a number of factors that
need to be considered, and any advice really needs to be
tailored to your personal tax situation.

For instance, while delaying receipt of the principal
normally is considered a "good" tax planning move (it delays
the payment of tax), there are definitely situations where
it is counterproductive from a tax perspective as well as
the fact that you now take on the risk of default by the
buyer.
 
D

Dave Woods, EA

Dannie said:
Purchased personal home no business in 1957 which at that
time resided on a 100 * 200 corner lot. Only structure was
the home, no garage etc. and one deed. Several years ago I
engaged attorney to have the land split (2 lots 100 * 100
with the house on one lot and the other lot is plain
ground). Had to apply for subdivision in our town which
required new map etc. and subdivision was granted by town
and all this was recorded in county deed book etc..

A developer has made an offer for the empty 100 * 100 but
that's it right now. With talk about the revised capital
gains law change I am in a quandary as to what to do, but I
want to start the planning process.

1. How do I establish original land price in absence of any
figures other than purchase price in 1957?
Best bet would be based on real estate bills for the land
allocation and apply that allocation to the original
purchase price and then divide by two.
2. Does the date of the subdivision enter in when it became
a separate parcel? The costs associated with the lot are
Taxes (separate tax bill), and mowing the grass etc..
Subdivision is irrelevant for holding period purposes.
What tax form would the buyer be required to supply me?
1099-S at most, which doesn't do anything other than tell
you what you already knew about the sale.
He
has already mentioned creative buying with him giving me so
much this year and the balance next year. Of course my goal
in this is to minimize the federal taxes.
An installment sale isn't going to lower the ultimate tax
cost unless you have almost *no* other income next year.
It's all taxed at capital gain rates, and no matter when you
sell it later this year or next, will be taxed at the new
cap gain rate.
Any information and advice would certainly be appreciated.
Hire a local competent professional.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.
 
A

Arthur L. Rubin

Dannie said:
Purchased personal home no business in 1957 which at that
time resided on a 100 * 200 corner lot. Only structure was
the home, no garage etc. and one deed. Several years ago I
engaged attorney to have the land split (2 lots 100 * 100
with the house on one lot and the other lot is plain
ground). Had to apply for subdivision in our town which
required new map etc. and subdivision was granted by town
and all this was recorded in county deed book etc..

A developer has made an offer for the empty 100 * 100 but
that's it right now. With talk about the revised capital
gains law change I am in a quandary as to what to do, but I
want to start the planning process.

1. How do I establish original land price in absence of any
figures other than purchase price in 1957?
Does your property tax assessment make a distinction between
land and structures? If so, even the current (pre-split)
allocaition is helpful in allocating the basis to land and
structures.

Alternatively, the original purchase price could be
reallocated between the two parcels based on their assessed
values at the time of the split.
2. Does the date of the subdivision enter in when it became
a separate parcel? The costs associated with the lot are
Taxes (separate tax bill), and mowing the grass etc..
I don't think so. There are rulings that, for the question
of whether the property is your "main home", whether there
is more than one deed and/or property tax assessment is
irrelevant. OTOH, if the purpose of the split was to sell
off the land, then the new parcel might be considered
investment property, and the expenses related to it become
miscellaneous itemized deductions -- but you should have
done that from the time of the split. Taxes are a schedule
A deduction regardless of allocation. I believe the cost of
the division itself might also fall into miscellaneous
itemized deductions, and is almost certainly lost if you
didn't claim it at the time.
What tax form would the buyer be required to supply me?
Form 1099-S.
He
has already mentioned creative buying with him giving me so
much this year and the balance next year. Of course my goal
in this is to minimize the federal taxes.
Don't quote me on this, but my recollection is that, if you
sell your house within 2 years of the sale of the lot, the
entire sale will qualify for the $250,000-$500,000
exclusion.

If not, the sale of the lot is (very) long-term capital
gain, subject to the new 15% maximum tax rate. If the
purchase price is split over more than one year, you may
have an installment sale. See form 6252 and instructions.
 
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J

Jo Firey

Paul A. Thomas said:
"Dannie" wrote
Your cost basis of the land is that portion of the purchase
price that would be allocated to the land (as opposed to the
house) and half of that (because you're selling half the
land).
The date you subdivided it is not a factor.
Since it doesn't seem to be part of the sale of your home,
you will pay tax at the capital gains rate. It's worth your
while to run scenarios for taking the money now (and paying
tax on all the gains now) or taking installment payments and
paying the tax over the life of the payments.

The factors that are important are your current other income
(income from other sources than the sale) and your future
other income.
And additional very important factor is who will be making
the installment payments. You do not need to get involved
with some "get rich by buying land with no money down
shark."

And for heavens sake never release your lien on the land
for a builder that "needs this piece of paper signed so he
can get financing to build"

You do not want to know how often this happens. "Builder"
then obtains credit using the land as collateral and
disappears with the money. Or is just a lousy builder and
credit risk and loses the money.

Jo
 
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