I have a client who bought several condo units and combined them to make one big home. It is their primary residence. They decided to divide one lot and sell it. They meet all criteria for home sale gain exclusion, but can they take it in this case? They used the lot as part of their primary residence, but they will remain at the same (now smaller) address. Do we think they can exclude the gain?
To qualify for the 121 exclusion you have to sell your main home at a gain. Selling lots does not count.
If building was attached to land, maybe:
(3) Vacant land -
(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
This has been asked Twice, and is also being answered here:
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It's similar. They bought up several adjacent condo units in a building and knocked out walls to make it one big condo. Now they just sold of one of the condo units separately after separating it from the other units (putting walls back). So this sold unit was part of their primary residence for years.
It sounds to me that it is a partial interest sale.
If that is the case, that means they do qualify for the exclusion, BUT when they sell the rest of the house their exclusion will be reduced by the amount they claimed for this sale of the partial interest.
See Reg 1.121-4(e).
Ok, it sounds like they are eligible for a partial exclusion. Be sure they keep track of the amount, as they will have to subtract that amount in case of a future sale. Also be sure they meet all the requirements in pub 533