I'm not sure I'm following along with what happened here. It sounds like you partitioned the land your primary residence is sitting on and sold land adjacent to your new, smaller lot on which your residence sits. I'm not sure if the $32K appraisal figure applies to your original purchase of the entire plot of land, or just the part that you sold off.
But assuming that my assumption as to what happened here is correct, Pub 523 has this to say about the situation:
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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:
- 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.
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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If you don't anticipate selling your home within 2 years of this land sale then the partial sale of land gets reported as a capital gain. You'll need to allocate some portion of the original cost of the land to the sold portion and calculate your gain accordingly. It will be short term or long term gain depending on whether you sold a year or less after purchase or more than a year after purchase.
Short term capital gains are taxed at marginal, "ordinary income" tax rates while long term rates can range from 0% to 23.8% depending on the amount of your other income.
Tom Young
