Slightly complicated...1) We subdivided the land that was party of our primary residence. 2) We sold the land but not the house. 3) We bought a new primary residence, and took most of the income from the land sale towards the new home to reduce the mortgage.
Do I have to pay capital gains on the full land sale amount? Where do I indicate that I put the proceeds toward a new home? Right now, Turbotax thinks I had a lot of income, and that I owe a lot of federal tax!
Yes, you have to pay capital gains on the full land sale. The sale of the land that was part of the sub-division is a separate transaction than the purchase of another home.
When you report the land sale be sure to include the prorated share of the original purchase, the portion of the sub-division cost that applies to that parcel and any expenses of sale to arrive at your cost basis. The gain on this sale will receive a special tax rate, below your regular rate of tax, if the land was owned more than one year. If not, it will be taxed at your regular rate.
The purchase of the new home does have some deductions that may help to reduce your overall income if you can itemize deductions.
You can deduct the mortgage interest and property tax paid in 2016 if you are able to itemized deductions. Be sure to include any points as well as mortgage insurance premiums (also known as MIP or PMI*). This information will be on the settlement statement, usually known as the HUD1, or on the year end statement from the lender. If property taxes were paid by you and not the lender you would determine that amount paid from your funds (not the escrow).
The items on your HUD-1 or other Settlement Statement will fall into categories noted.
Yes, you have to pay capital gains on the full land sale. The sale of the land that was part of the sub-division is a separate transaction than the purchase of another home.
When you report the land sale be sure to include the prorated share of the original purchase, the portion of the sub-division cost that applies to that parcel and any expenses of sale to arrive at your cost basis. The gain on this sale will receive a special tax rate, below your regular rate of tax, if the land was owned more than one year. If not, it will be taxed at your regular rate.
The purchase of the new home does have some deductions that may help to reduce your overall income if you can itemize deductions.
You can deduct the mortgage interest and property tax paid in 2016 if you are able to itemized deductions. Be sure to include any points as well as mortgage insurance premiums (also known as MIP or PMI*). This information will be on the settlement statement, usually known as the HUD1, or on the year end statement from the lender. If property taxes were paid by you and not the lender you would determine that amount paid from your funds (not the escrow).
The items on your HUD-1 or other Settlement Statement will fall into categories noted.
Hi Diane,
Well, I actually took this situation to HR Block, and they said as long as you move from one primary residence to another, any profit made on the sale of the first primary residence, you do not have to pay capital gains tax. Which is great, because the profit was significant with the land subdivision. I think a couple caveats are 1) we had to sell the first residence as well, not just the land, which we did, and 2) you can only take advantage of this type of situation once every 5 years, which prevents people from doing it as a business of buying land, subdividing, and immediately moving.
Thanks goodness...they saved me a lot of money.
Thanks,
Gwen