So, long story short, I have a piece of vacant land I'm thinking of selling. It's right next door to my residence, so it counts as part of my homestead. I've only owned it for a year, though, so if I sell now I'll incur long-term capital gains. If I sell after two years, I'll pay no tax on it due to the principal residence exemption.
My question is this - if my salary is $60,000, such that I'm in the 15% tax bracket and, consequently, pay 0% on capital gains, will the whole $150,000 long-term gain be taxed at 0% if I sell right now instead of waiting two years and getting the principal residence exemption?
If you owned it within an IRA (self directed) you would pay zero taxes, if you are married, between you and your wife you have a life time exemption of $500,000 on capital gains. Don't know if this helped?
I don't think that will fly for your personal residence exemption... you can't split off part of your residence and sell it.. you need to sell the house also.. its were you reside that is the test.
Talk to a CPA. If it is a separate parcel of land, that was simply bought along with your residence, I don't believe the residence exemption comes into play. As for selling a "part" of your principle residence, I'm guessing the same.
I agree with Jay that this probably won't fly. You said that it is next door to your residence, so I'm guessing this is different parcel, different property. You can only have one primary residence.
Regarding taxation you need to get advice of a tax expert, @Nathaniel Busch would be my go to person for questions like this.
In Michigan an adjoining separate parcel can be added on to your Principal Residence Exemption for Real Estate property tax purposes.(Box 6b on PRE form)
But I do agree you would not likely be able to claim any federal income tax relief unless it was sold at the same time as the rest of your primary residence.
Review IRS pub 523 with your CPA. there's a couple of interesting twists to it....Vacant Land Next to Home
"If you have vacant land adjacent to the land on which your home sits, you can only claim the sale of that land as part of a sale of your home if ALL of the following are true:
- You owned and used the vacant land as part of your home.
- The sale of the vacant land and the sale of your home happened within 2 years of each other.
- Both sales either meet the eligibility test or qualify for partial tax benefits as described earlier.
If your sale of vacant land meets all these requirements, you must treat that sale and the sale of your home as a single transaction for tax purposes...."
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