House Sale Reinvestment in Like Property?

[user_68niou1]

I recently sold my primary residence in WA state, which we have owned for about 1.75yrs. My wife and I are considering reinvesting our proceeds (~$50,000) by purchasing 80 acres, which we can subdivide and sell off one or two parcels and then build on one of the remaining parcels (we won't be able to afford the home we want to build until one or possibly two parcels sell). The land is dividable into 20's. Selling the parcels off may take a year or more.. not sure but the market seems hot now esp. for that size lot. Are we facing any tax penalties (capital gains or otherwise) for doing so?

[Snipes5]

A personal primary residence is not an Investment Property. "Like-kind Exchanges" do not apply.

Yes, if you buy land, subdivide it an sell pieces of it, you will have to pay capital gains.

Snipes

[user_68niou1]

Originally Posted by Snipes5

A personal primary residence is not an Investment Property. "Like-kind Exchanges" do not apply.

Yes, if you buy land, subdivide it an sell pieces of it, you will have to pay capital gains.

Snipes

Is that capital gains on proceeds from our home sale or from selling parcels, or both? If we're facing capital gains tax on our home sale proceeds, can we avoid that by buying the land and building first and then subdividing?
Thanks!

[Snipes5]

The only way to avoid Capital Gains on your principal residence is to meet the requirements for Reduced Exclusion, since you only lived there/owned it for 1.75 years.

Capital Gains is not a penalty, it's a tax, and a more favorable one at that.

Snipes

[user_68niou1]

Originally Posted by Snipes5

The only way to avoid Capital Gains on your principal residence is to meet the requirements for Reduced Exclusion, since you only lived there/owned it for 1.75 years.

Capital Gains is not a penalty, it's a tax, and a more favorable one at that.

Snipes

Please bear with me as obviously I'm really clueless. What is a reduced exclusion and how would I be able to meet those requirements? Or are you saying that becuase I only lived there 1.75yrs I don't meet reduced exclusion requirements? Thanks so much. I really appreciate your help.

[Snipes5]

Full exclusion amount is $250,000 per taxpayer.

Reduced exclusion is what you are allowed if you don't meet the requirements for automatic full exclusion.

One of the requirements is the 2 year requirement, which you do not meet if you only lived there for 1.75 years.

You can qualify for a reduced exclusion if you sold the house for "extenuating circumstances", such as a job change (more than 50 miles away), ill relative or family member needing different living arrangements, birth, death, etc.

Hope that explains it for you.

Snipes

[user_68niou1]

Originally Posted by Snipes5

Full exclusion amount is $250,000 per taxpayer.

Reduced exclusion is what you are allowed if you don't meet the requirements for automatic full exclusion.

One of the requirements is the 2 year requirement, which you do not meet if you only lived there for 1.75 years.

You can qualify for a reduced exclusion if you sold the house for "extenuating circumstances", such as a job change (more than 50 miles away), ill relative or family member needing different living arrangements, birth, death, etc.

Hope that explains it for you.

Snipes

It does thank you so much for your time!

IRS is paying real close attention to these realestate transactions. Inside knowledge. On the computer base its flagged and ran through a second base.