Capital Gains on the Sale of a Partial Release land Parcel?

[JamesWhitney]

I am in the process of doing a partial mortgage release/subdivide on 3 acres of my 6 acre property. I would like to sell that parcel, and invest the proceeds in my current residence (on the remaining primary 3 acre parcel), by refinancing with my mortgage company and lower my monthly payment. The primary parcel with my house has been owned and I have lived in it for 6 years and is past the capital gains period. By doing this, will I have to pay capital gains on the sale of the 3 acres? Is there a way to avoid capital gains by doing this? Thanks.

 

[Just Blue]

I am in the process of doing a partial mortgage release/subdivide on 3 acres of my 6 acre property. I would like to sell that parcel, and invest the proceeds in my current residence (on the remaining primary 3 acre parcel), by refinancing with my mortgage company and lower my monthly payment. The primary parcel with my house has been owned for 6 years and is past the capital gains period. By doing this, will I have to pay capital gains on the sale of the 3 acres? Is there a way to avoid capital gains by doing this? Thanks.

What state?

 

[LdiJ]

I am in the process of doing a partial mortgage release/subdivide on 3 acres of my 6 acre property. I would like to sell that parcel, and invest the proceeds in my current residence (on the remaining primary 3 acre parcel), by refinancing with my mortgage company and lower my monthly payment. The primary parcel with my house has been owned for 6 years and is past the capital gains period. By doing this, will I have to pay capital gains on the sale of the 3 acres? Is there a way to avoid capital gains by doing this? Thanks.

Since you will be selling land that will no longer be part of your primary residence, yes, you will be subject to capital gains taxes on those 3 acres. You would allocate basis to that portion of the land based on what acreage in the area was with per acre when you bought it. You would reduce the basis in your primary residence and remaining land by that amount.

Your capital gain would then be the sales price, minus selling expenses, minus basis. If you made significant improvements to the land you would add allocate a share of that to the basis in the land, which would increase your basis. The kind of improvements I am thinking about are utilities, a private road, sewers, or anything else that significantly increased the value of the land.

 

[quincy]

I am in the process of doing a partial mortgage release/subdivide on 3 acres of my 6 acre property. I would like to sell that parcel, and invest the proceeds in my current residence (on the remaining primary 3 acre parcel), by refinancing with my mortgage company and lower my monthly payment. The primary parcel with my house has been owned and I have lived in it for 6 years and is past the capital gains period. By doing this, will I have to pay capital gains on the sale of the 3 acres? Is there a way to avoid capital gains by doing this? Thanks.

What is the name of your state?

You have already checked to see that your land can in fact be subdivided?

Your mortgage loan is on the house and 6 acres?

 

[JamesWhitney]

What state?

Idaho

 

[JamesWhitney]

What is the name of your state? Idaho

You have already checked to see that your land can in fact be subdivided? Yes, this is in process now and we don't anticipate any issues.

Your mortgage loan is on the house and 6 acres? Yes it is

 

[quincy]

How is the property deeded?

Is it a single 6-acre property with house? Has it been taxed as a single property or has 3 acres been taxed separately? The zoning in your area allows for subdividing the acreage?

Your mortgage lender will want to make sure the house with less acreage appraises out to cover a new loan.

I see more problems than just capital gains here. You should be working with a real estate professional in your area.

 

[LdiJ]

How is the property deeded?

Is it a single 6-acre property with house? Has it been taxed as a single property or has 3 acres been taxed separately? The zoning in your area allows for subdividing the acreage?

I think that he already indicated that it was already in the works and was ok. He did put his answer within the quote so that might have caused you to miss it.

Your mortgage lender will want to make sure the house with less acreage appraises out to cover a new loan.

I see more problems than just capital gains here. You should be working with a real estate professional in your area.

I agree with this, but since he wants to use the money from the sale of the acreage to pay down the mortgage, I would suspect that he is going to be ok on that part as well.

 

[quincy]

I don’t want to assume anything.

Selling off part of mortgaged property to pay down the mortgage requires lender approval, this if the parcel can be divided at all.

 

[FlyingRon]

He'd also have difficulty selling the divided parcel without getting the mortgage company to release claims on the split-off piece. The new buyer (and his lender if there is one), will have issues with any encumbrance that may persist

 

[JamesWhitney]

He'd also have difficulty selling the divided parcel without getting the mortgage company to release claims on the split-off piece. The new buyer (and his lender if there is one), will have issues with any encumbrance that may persist

The mortgage partial release application is in process now and we don't expect any issues. The appraisals should meet their requirements thanks to the significant increase in real estate values in my area. We ran many comps prior to submitting our app.

 

[JamesWhitney]

I don’t want to assume anything.

Selling off part of mortgaged property to pay down the mortgage requires lender approval, this if the parcel can be divided at all.

We had to rezone from Agriculture to R1 first, this was approved by the County. Now we are working with the bank for the partial release approval. Then we file for the subdivide. All is expected to be completed by April.

 

[quincy]

How is the property deeded? How is the property taxed?

 

[JamesWhitney]

How is the property deeded?

Is it a single 6-acre property with house? Has it been taxed as a single property or has 3 acres been taxed separately? The zoning in your area allows for subdividing the acreage?

Your mortgage lender will want to make sure the house with less acreage appraises out to cover a new loan.

I see more problems than just capital gains here. You should be working with a real estate professional in your area.

Property is deeded as 6 acres with a house. It is currently taxed as a single property. Rezoning was necessary and was approved.

 

[JamesWhitney]

We are also working with a licensed surveyor and a real estate attorney to ensure all steps are followed for the rezone (approved) and subdivide (pending approval by the mortgage company for the partial release). The county has already said the subdivide shouldn't be an issue based on similar filings in the area that have been approved. So the back end work is not an issue. I am trying to weigh my options when it comes to selling the subdivided parcel and the related tax consequences.