Because I sold a rental property, I am being asked to separate the "sales price" between the "asset" and the land based on their "fair market value". How am I supposed to differentiate a single sale price amount between the home and the land? The county assessment records until 2017 show a 50/50 split. But clearly, when I sold the home in 2018, my home price was significantly higher.
In specific numbers, Land assessed value was $329,213 and "Improved" (i.e. the asset) assessed value was $329,213 yielding to a total of $658,426. This record is for 2017. County has yet to do 2018. I sold the house in 2018 at the sale price of 1,520,000.
I was wondering if one way to calculate the asset value as (total sale price - land assessed value in 2017). So in this case it would be 1,520,000 - 329,213 =1,190,787. It may still not be accurate since I am using the 2018 sale price against the 2017 assessed value. But if IRS is not that particular about this, could this be a way to go? If I am getting it completely wrong, please advise.
Secondly, what happens if I got the differentiation wrong? From the perspective of how much amount I owe in taxes, what is the negative impact? From IRS perspective, if I got this wrong, can I get audited for something like this?
