Cash In On Sale-Of-Land Tax Trends

Under the old tax laws, tax on the gain on the sale of land adjacent to your main residence could be avoided if you also sold the house within a two-year period and replaced it with a more expensive property. Then, in 1997, the law was changed to provide an exclusion of up to $500,000 on the sale of property owned and used as a primary residence in two of the five years before the sale. According to the IRS, the gain on the sale of the adjacent land may also be eligible for the $500,000 exclusion. That could be the case if the tract is sold as part of a series of transactions that includes the sale of the home. However, to qualify, the land must be used residentially in at least two of the five years before the sale, and that use must coincide with the two years that the house was occupied as a principal residence. The IRS also clarified that the gain on the sale of the adjacent land is subject to tax if the house is not sold. The private letter ruling seems to provide opportunity for some sophisticated tax planning.

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