Capital Gain on Vacant Land Sale after Divorce

[jharden]

My ex-husband and I just sold jointly acquired vacant land in MI. Purchase price was $55,000. Selling price $155,000. The land was held greater than 18 months, making it a long-term gain. We both received half the proceeds. How do I file for only half of the capital gain and is there any way to defer it now with the purchase of a home? How do I find out if the state I live in now, NC, assesses capital gains tax as well?

 

[loku]

The deferral of gain you are thinking of had to do with the sale of one residence and replacement with another. That law ended in 1997. Since then, there has been an exclusion of $500,000 of gain for a married couple on the sale of their main residence. But vacant land was not your main residence, so the exclusion does not apply.

There is a possibility that you can defer the gain. If you held the property for investment, then the gain would be deferred if you replace the property with other real estate investment property WITHIN THE SPECIFIED TIME LIMITS. Like-kind treatment is barred if the property to be received is not identified within 45 days after the transfer, or is not received within 180 days after the transfer (or by the due date (with extensions) of the transferor's tax return for the year of transfer, if earlier). (IRC section 1031(a)(3)).

The gain is subject to Michigan income tax because it was Michigan real estate. It is also subject to NC income tax because you are a resident of NC; however, NC allows a credit against the income tax for taxes you pay Michigan.

You and your ex should each report the sale of one-half the property. Each of you is entitled to one-half of all items of basis, expense, and gain and loss.