Ed Zollars, CPA wrote:
- quote -

Excelent exposition, Ed.

This puts me in mind of former client who every year asked
me why couldn't he claim the interest paid on the 300+ acres
he bought adjacent to his home. I told him he was claiming
the interest, although as investment interest it was
somewhat limited (explaining why of course).

His home had been purchased 20 years previous to the purchase
of that land at an IRS auction, no less.

Cheer$,
Harlan Lunsford, EA n LA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

HW "Skip" Weldon wrote:

- quote -

Only the adjacent lots have a chance of qualifying. The one
across the street does not.

The adjacent lots have to have been held for personal use
as a part of the residence. Enjoying the beauty of the
colorful leaves in Autumn and listening happily to birds
singing are two examples of personal use.

Regards,
Bill
~~~~
Associate Professor of Accounting
Longwood University
Department of Accounting, Economics & Finance
http://www.longwood.edu/staff/wpbrown/
Opinions expressed by me are mine, not my employer's.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

HW "Skip" Weldon wrote:

- quote -

Regulation 1.121-1(b)(3) covers this situation and gives the
tests involved. From the regulation:

---begin quoted text

(3) Vacant land.

(i) In general. The sale or exchange of vacant land
is not a sale or exchange of the taxpayer's principal
residence unless—

(A) The vacant land is adjacent to land
containing the dwelling unit of the taxpayer's principal
residence;

(B) The taxpayer owned and used the vacant land
as part of the taxpayer's principal residence;

(C) The taxpayer sells or exchanges the
dwelling unit in a sale or exchange that meets the
requirements of section 121 within 2 years before or 2 years
after the date of the sale or exchange of the vacant land; and

(D) The requirements of section 121 have
otherwise been met with respect to the vacant land.

(ii) Limitations.

(A) Maximum limitation amount. For purposes of
section 121(b)(1) and (2) (relating to the maximum
limitation amount of the section 121 exclusion), the sale or
exchange of the dwelling unit and the vacant land are
treated as one sale or exchange. Therefore, only one maximum
limitation amount of $250,000 ($500,000 for certain joint
returns) applies to the combined sales or exchanges of
vacant land and the dwelling unit. In applying the maximum
limitation amount to sales or exchanges that occur in
different taxable years, gain from the sale or exchange of
the dwelling unit, up to the maximum limitation amount under
section 121(b)(1) or (2), is excluded first and each spouse
is treated as excluding one-half of the gain from a sale or
exchange to which section 121(b)(2)(A) and §1.121-2(a)(3)(i)
(relating to the limitation for certain joint returns) apply.

(B) Sale or exchange of more than one principal
residence in 2-year period. If a dwelling unit and vacant
land are sold or exchanged in separate transactions that
qualify for the section 121 exclusion under this paragraph
(b)(3), each of the transactions is disregarded in applying
section 121(b)(3) (restricting the application of section
121 to only 1 sale or exchange every 2 years) to the other
transactions but is taken into account as a sale or exchange
of a principal residence on the date of the transaction in
applying section 121(b)(3) to that transaction and the sale
or exchange of any other principal residence.

(C) Sale or exchange of vacant land before
dwelling unit. If the sale or exchange of the dwelling unit
occurs in a later taxable year than the sale or exchange of
the vacant land and after the date prescribed by law
(including extensions) for the filing of the return for the
taxable year of the sale or exchange of the vacant land, any
gain from the sale or exchange of the vacant land must be
treated as taxable on the taxpayer's return for the taxable
year of the sale or exchange of the vacant land. If the
taxpayer has reported gain from the sale or exchange of the
vacant land as taxable, after satisfying the requirements of
this paragraph (b)(3) the taxpayer may claim the section 121
exclusion with regard to the sale or exchange of the vacant
land (for any period for which the period of limitation
under section 6511 has not expired) by filing an amended
return.

---end quoted text

The lot across the street may raise some questions about
being "adjacent" in the view of the regulations. If it was
directly across the street I'd probably feel OK--this, if
the street were magically "removed" and the curbs now
touched, the land would border the other pieces. I would
argue that is "like" a case where you allowed the city to
build an access road across your single lot. It's not
necessarily a "slam dunk" but it least it appears arguable
until we get case law on this regulation.

But if it is "offset" (that is, down the street) I think you
have a bigger problem. After all, the regulation says
adjacent not just "somewhere in the area" <grin> .

--
Ed Zollars, CPA
Phoenix, Arizona

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Person owns home and land the home sits on, two lots next to
it (separate deeds), and a lot across the street (separate
deed). The separate lots are wooded - not improved.

If all sold together, are all pieces considered part of his
"residence" for purposes of the $250,000 (single person)
exclusion?

-HW "Skip" Weldon
Columbia, SC

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->