Friendly tax experts! Here is my scenario: I need to sell my primary residence which covers 3 acres. When I bought it originally five years ago, I converted 10% of the land across from my house into an outdoor horse arena. My home and horse arena are on the same parcel and are under my personal name. I use the horse arena 97% of the time for my small business (training horses as inventory) and 3% for personal reasons. I have been slowly depreciating this horse arena as land improvement over time as part of my business.
Here is where I am struggling: I have lived at my primary residence for the last five years, so my home should qualify for primary residence exclusion. I expect that I may need to recapture some depreciation of the horse arena if the appraiser finds an amount higher than the basis. However, does the land on which the arena sit still qualify under the primary residence exclusion? In other words, if I sell for a profit of $100k total, and I don't need to recapture for the arena, would that entire $100k amount be excluded from capital gains? Or would the 10% land be disqualified from the exclusion?
Thanks so much for your expertise & help!
