EDITED 3-21-2017
"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." Per Pub 523.
The gain would be excluded from income as it should be treated as Sale of Personal Residence, just like it was part of the original sale. So report the adjacent lot sale under the Less Common Income section as a Personal Residence sale for 2016. Keep the section from Pub 523 with the tax file.
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.
You owned and used the vacant land as part of your
home.
The sale of the vacant land and the sale of your home
happened within 2 years of each other.
Both sales either meet the eligibility test or qualify for
partial tax benefits as described earlier.
