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cvap

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If i own two homes on the same deed and want to split the land and sell one of them, how would the gains be calculated? We use both homes and have one mailbox. There are separate 911 addresses but it would be hard to say which home is our residence. We've been here 17 years. Would i claim one as a residence now , and the other as a residence for a future sale? Or would there be no deductions until the whole property is sold?

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I’m assuming neither was ever rental property.  If so, please post back and clarify.

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how would the gains be calculated?

Gain on the sale of property is sales price minus cost (or amount realized less adjusted basis in tax parlance.)  The sales price is easy – it’s what you sold the parcel for.  If the property was purchased in one transaction (land plus two houses) you need to make an allocation of the original purchase price between the two to arrive at the cost of the one sold.  This would normally be done using fair market value at the time of purchase to allocate cost between the two.

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it would be hard to say which home is our residence.

I’m not sure why.  You can only have one principal residence at any given time.  To be eligible for potential exclusion of the gain (up to $250,000 or $500,000 on a joint return) you need to live in the one that is sold for two of the preceding five years.  I’m not sure why you think this is hard, as you either lived in one or the other.  If one is occupied by your parents or children, then that one is not your principal residence.

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Or would there be no deductions until the whole property is sold?

You can’t defer reporting the gain until the second property is sold.

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Thank you for the info.

 First, i did use VRBO and rented the house being sold for two summers on weekends by the night. When the property was purchased, the house being sold was the only home on the property. The Town let me add another home without surveying and dividing the land. I don't know how that would change your first explanation.

 

 I did think using the one being sold as a residence would save gains. They are next door with a worn path between them, both furnished and stocked with food, TV's etc. I even sleep there many nights. No one could determine which was the residence by looking at the homes or bills they generate. But i guess to be completely honest i'd have to pick the newer home.

 

So i guess if i am selling half the land with the original home on the property, i would use the original purchase price, determine the value of the land at that time and cut it in half and anything over that sum would be gains. Unless the about five grand in rental income over 17 years changes anything.

 

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Hi @cvap

 

Welcome to the community and thanks for posting! Looks like AdjunctFL has offered some excellent guidance! To completely understand your options, you may want to consider conferring with a good real estate attorney. You can find an attorney in Massachusetts using FindLaw's lawyer directory

 

Best of luck!

The FindLaw.com Team

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 First, i did use VRBO and rented the house being sold for two summers on weekends by the night.

 

That would complicate the gain computation, as you would need to reduce the basis by any depreciation claimed while it was a rental.  In computing the depreciation each year, didn’t you already compute the cost of the separate property for depreciation purposes?  (At least the cost assigned to the building.)

 

The computation of cost that you suggest using the original price would be correct, so long as it is adjusted for depreciation. 

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Thanks again AdjunctFL, 

I actually used Turbotax and believe I only claimed the income minus electricity, linens, paint and such. I don't think I depreciated the property's value though i am ignorant to the questions the Turbo tax program asked.

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