David Woods, EA, ChFC, CLU wrote:
- quote -

The total is 80 acres, and I am renting 60 of it out - thus
the 75%. Again, the most important thing is how to split the
interest and property taxes. Should they be split on
appraisal value? Or on property tax valuation, which would
seem odd since farm land around here is valued on taxes to
be very low - much, much lower than market value (i.e. what
we paid for the land).

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"ben.held[at]staarinc.com" <ben.held[at]staarinc.com> wrote:

- quote -

Define "Normally". You have to meet qualifications.

- quote -

There will be tax. How much remains in question.

- quote -

Umm 75%?

- quote -

No.

- quote -

Makes no difference if you take the expense or not when you
sell. So take the expense.

- quote -

It complicates the matter. A LOT. In a nutshell, you pay
the tax upfront and if you make a qualifying sale within a
period of time afterwards, you amend to refund some of that
tax.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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I live in Wisconsin and purchased an 80 acre parcel in
December 2003. In 2004, we started and completed a new home
on the land and moved into the home in 12/04. Of the 80
acres, 60 acres is rented to a local farmer on an annual
basis. I received the rent for 2004 in early December 2004.

I have the following questions:

1. Normally when you sell a home you don't have to pay
capital gains on the "profit" if it is under a certain
amount. In this case, with such a large parcel of land,
assuming the laws don't change, when I sell this house w/80
acres, will I have to pay capital gains on the profit? The
following questions may affect this answer.

2. Since I have to claim the rent as income, I should be
able to expense things like interest and property taxes. I
am renting out 75% of the land, so how do I figure out what
% of the interest and property taxes I can expense?

3. Does the fact that for 11 1/2 months of 2004 we were not
living there have an affect on how we split this?

4. If I expense these items, does this force me to pay
capital gains on some % of the profit when I sell? Or more
to the point, if I expense nothing and just claim the
income, does that allow me to sell w/o capital gains?

5. How is this affected if I sell smaller parcels off the of
the land and remain living in the house?

TIA,
Ben

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