Actually, that doesn't seem the right way to report this sale. I believe the lot sale and the home sale need to be combined, which can work to your advantage, potentially excluding more capital gain.
Here's what the IRS has to say about your situation (I supplied the emphasis:(
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Pub 523
"Vacant Land Next to Home
If you have vacant land adjacent to the land on which your home sits, you can only claim the sale of that land as part of
a sale of your home if ALL of the following are true:
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You owned and used the vacant land as part of your home.
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The sale of the vacant land and the sale of your home happened within 2 years of each other.
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Both sales either meet the eligibility test or qualify for partial tax benefits as described earlier.
If your sale of vacant land meets all these
requirements, you must treat that sale and the sale of your home as a
single transaction
for tax purposes.
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Tom Young
