1099-S for sale of a small fraction of lot on which my house sits

[AlanNB]

I sold a 1 foot swath of my 40 foot wide lot for "X" dollars.  (This land is added to the size of the adjacent lot which will allow a new house to be built there).  The use of the house which is my permanent address is unaffected because I received an easement for exclusive use.  How do I determine the cost basis for this sale?  Would it be the 1/40 of the land portion of the original purchase price of the house (i.e house and land)?  Also, TurboTax is not set up to handle a real estate sale like this and so treats this sale as equivalent to the sale of a house. The end result is that I owe no tax on nearly 100% of the proceeds.  Does this make sense?

[Mike9241]

you are correct Turbotax and even most pro software is not designed to handle this situation.   Would it be the 1/40 of the land portion of the original purchase price of the house (i.e house and land)? that's fair and equitable since I doubt any 1-foot section of your land is worth any more than any other 1-foot section. 

gain from the sale of the land that has been used as part of the principal residence can use the home sale exclusion if the land sale occurs within 2 years before the sale of the dwelling unit. the land must be adjacent to the land containing the dwelling unit and meet all other requirements for qualifying for the exclusion. if you do not plan to sell your house within 2 years of selling this land, I would just report it like a stock sale. type would be E long-term gross sales proceeds but not tax basis reported to IRS.  if you do plan to sell within that period and don't want to pay tax on the gain you have to use the home sale worksheet.  should you then not sell the dwelling within that timeframe you will have to go back to amend the 2022 return and pay any additional taxes along with penalties and interest. even if you do intend to sell the dwelling, you can elect to forgo using part of the exclusion on the land sale. any portion used for the land sale would not be available for the dwelling sale.  

[Opus 17]

Report this as sale of an investment item. Use the purchase price and the sale price to be the same. The proceeds from the sale are not taxable, but the price you received for the strip of land reduces your cost basis, which is used to calculate your capital gains when you sell the main property.  

for example, suppose you purchased the house for $100,000 and you receive $2500 for the sale of the strip of land. Whenever you sell your home, you would calculate your capital gain from an adjusted cost basis of $97,500.

[DanaB27]

Yes, you can report the sale of the land as a sale of an investment item as Opus 17 and Mike9241 stated.

Please follow these steps to enter it into TurboTax:

1. Click "Wages & Income" (under Federal) on the left
2. Scroll down and click "Show more" next to "Investments and Savings"
3. Scroll down and click "Start" next to "Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)" 
4. On the "OK, let's start with one investment type" screen select "other"
5. On the "Now, enter one sale" screen select "Land (other investment)" and enter the information.
    

Yes, as Mike9241 stated you would allocate 1/40 of your basis in the total property (purchase price plus improvements) as the basis of the sold land.

As Opus 17 mentions you will have to reduce the basis of your property by the basis entered for the sale of the land.

@AlanNB 

[AlanNB]

I want to thank you for your response.  I have been using TurboTax for many years and this is the very first time I have sought advice.  Again, thank you.

[AlanNB]

Thank you very much for the reply.  This is my first time seeking advice in this community.

[AlanNB]

I will follow this approach because this is a very useful near-term solution to the need for funds..  

[AlanNB]

Thank you for confirming the appropriateness of both proposed approaches. This gives me confidence in accepting advice proffered by the community of user experts.