topic how to calculate capital gains on sale of small part of property. in Investors & landlords

how to calculate capital gains on sale of small part of property.

GarryWV — Thu, 13 Feb 2025 12:16:52 GMT

I have a question about how to properly figure out capital gains and cost basis. I purchased the property in 2013 for $30,000 a house on 5 city lots and then 12 separate lots behind the house (17 lots total one has the house). Last year I sold 3 of the 12 unimproved lots for $58,000. I read were I have to take the value of the 3 lots as 3/17 or about 18% of the entire package purchase price. This property is in WV and is not my residence. Based on our taxable income, the capital gains rate is 15%. The 2024 assessed value of the house with 5 lots is $35,280 and the 12 lots is $6,780. I don't know if that matters. Thank you for any help.

Re: how to calculate capital gains on sale of small part of property.

PatriciaV — Sun, 16 Feb 2025 19:56:49 GMT

Yes, this transaction may be reported as an Investment Sale, found under Wages & Income >> Investment Income >> Stocks, Mutual Funds, Bonds, Other.

The easiest way to find this section of TurboTax is to use Topic Search/List (either under Tax Tools in the left column of TurboTax Online or in the header of TurboTax for Desktop). Type in "investment sale", hit Enter and click Go to go directly to beginning of this topic.

Click Start/Update or "Add a Sale."
Type of Investment: Land
Enter a description, Net Proceeds (sales price less selling costs & commissions); date of sale.
Acquired: whatever method fits
Cost Basis: See below
Date of Acquisition: purchase date

The cost basis of the parcel you sold must be allocated from the entire amount you paid when you purchased the home and lot.

Most taxpayers use the assessed value provided on the property tax statement. Calculate the percentage of value that belongs to the land, then apply that percentage to the basis for your property. Finally, calculate the cost per square foot and apply that to the parcel you sold.

Example:

Property Tax Assessment ($100,000 total):
- $80,000 for home & improvements
- $20,000 for land
Percentage of Land Value: $20,000/$100,000 = 20%
Basis of Property (your cost plus improvements) = $150,000
Allocated Basis of Land = 20% x $150,000 = $30,000
Square footage:
- Total = 21,780 (1/2 acre)
- Sold parcel (1/2 of lot) = 10,890 sq ft
Cost per square foot = $30,000 / 21,780 = $1.38 per sq ft
Cost basis of sold parcel = 10,890 sq ft x $1.38 per sq ft = $15,028

Re: how to calculate capital gains on sale of small part of property.

GarryWV — Sun, 16 Feb 2025 22:41:05 GMT

Thank you for responding. The answer is somewhat confusing especially having to go down to the square foot calculation. I will try to apply this to the situation I described in my question and will get back to you. Again thank you.