At Agili, we enjoy going above and beyond on behalf of our clients. As a team, we make every effort to do so, and we often share our knowledge internally so that we can help clients in similar situations. We thought we would share some of these “Above and Beyond” scenarios with you, our valued clients and friends.
Take Advantage of the Capital Gains Exclusion When Selling Main Home, Surrounding Land, Vacant Lot
You may be aware that there is a capital gains tax exclusion that applies to the sale of your main home ($250,000 for single/$500,000 for married filing jointly). Yes, this tax exclusion applies to the sale of your home, but more specifically, it applies to “…the building or buildings that constitute your home and the surrounding land you use as part of your home.”
Simultaneous Vacant Land and Home Sale
In our capacity as tax planners — a service that is above and beyond what many financial professionals provide — we use our knowledge of the capital gains tax exclusion to help when clients sell their homes.
Question: If you own vacant land surrounding your home that you sell separately from the home itself, can it also qualify for the exclusion?
The answer is “yes,” provided that:
- the vacant land is adjacent to land containing your home,
- the sale of the vacant land and the sale of your home occur within two years of each other,
- you owned and used the vacant land as part of your main home, and
- your use of the vacant land satisfies the two-year ownership and use rule.
Selling Vacant Land after Home Sale
If you sell your primary residence and then later sell adjacent vacant land (within two years of the sale of your primary residence), you may apply the primary residence capital gains exclusion to both the sale of the primary residence and the subsequent vacant land sale (even if these separate transactions occur months apart). At Agili, we know to view the sales as one transaction on the tax return (in accordance with the rule) – and depending upon the home/land value, there may be no tax due on the sales of the primary residence and the subsequent vacant lot sale. Our clients certainly benefit from our knowledge about the specifics of the exclusion.
Selling Vacant Land before Home Sale
What if you sell the land surrounding the primary residence first and then later sell the primary residence?
If you sell vacant land before you sell the home it surrounds, the sale will not qualify for the exclusion at that time. But, if you sell your main home within two years after you sell the vacant land, the prior sale will come within the exclusion. In this event, you may amend your return for the prior year and get a tax refund.
Contact Agili to Discuss Tax Considerations When Selling Home
So, if you are considering an upcoming home sale, be sure to contact your financial strategist at Agili to discuss tax considerations.
We’ve enjoyed letting you know how Agili goes the extra mile for clients in our role as tax planners and we look forward to sharing more “above and beyond” stories in the future!
Additional Resources
Agili Blog Post: Tax Planning vs. Tax Prep
IRS Publication 523: Selling Your Home