Capital Gains

[Philip1117]

For 2009 sale I need help figuring capital gains tax for sale of property. Propert is a 67 acre farm that has not been farmed by the seller for more than 10 years. Owner allows someone unrelated to work the land in exchange for property tax payment. No deprication ever taken on farm.

Sale Price 2,750,000 May of 2009

Purhcae Price 60,000.00 30 years ago

Improvements of 100,000.00

2008 AGI of 12,000.00

Given this information would the marrid taxpayer qualify for the $500,000.00 gain exclusion for sale of principal residence and at what rate is the 2009 capital gains tax caculated? Based on income it looks like in 2008 he would have qualified for less than 20%.

If you need more info let me know.

Thanks

Philip

[jainen]

>>would the marrid taxpayer qualify for the $500,000.00 gain exclusion for sale of principal residence<<

Not for the entire property, only for the portion used as a primary residence. There have been some rulings about contiguous land, which have allowed twenty or thirty acres. This taxpayer's property exceeds that by two or three times, and it clearly was being used by someone else for a different purpose.

Whether it was bought and sold in single transactions or even that it was all zoned as a single parcel does not change the basic fact that only a part of the property was used as his home. You may apply any reasonable method to allocate the basis and selling price to the two uses, including size or location if appropriate. A qualified appraisal would help support it, especially if you are trying to say the farmland itself had little value.

[mcb39]

My calculations come up with a gain of $1,590,000. Take away the 500,000 exclusion; the gain is then $1,090,000. Because the land is adjagent to the land containing the dwelling, it qualifies for the exclusion. However, in essence, he was "renting out" the land, as many farmers do, in return for payment of the property taxes. I think I would consider that the ten years of property taxes paid by the third party, should also be added back to the gain. For 2008, the CG rate would have been 15%. I don't know if they have decided yet on the 2009 rates.

[mcb39]

In addition, I believe Jainen is correct. I strongly believe that the portion of the land that was being farmed by a third party in return for payment of any kind forces it into being rental rather than personal use property and therefore reportable on 4797.

[kcjenkins]

I don't have a problem with the size, there is at leaxt one court case that allowed 120 acres as part of the residential property eligible for exclusion. But the rental, even though it was 'barter' type rental, does affect that portion.