Is the sale of personal use property subject to capital gains?

[swalsh1953]

In 1997 we purchased 15 acres of undeveloped land adjacent to our home on 5 acres. We had the two plots combined into a single legal description and single tax bill. We split off the 15 acres this year and sold to our neighbor. The net proceeds were 17K. I completed the capital gains section in Turbo Tax and checked the personal use box. Turbo Tax appears to be treating the 17K as non-taxable on my Federal return but as taxable on my Michigan state return. Can you tell me the correct way to handle the 17K? 

[HelenaC]

If you have a $17,000 gain on the sale of your land, depending on your tax bracket, it may be taxable on your federal and state income tax returns. 

Qualified dividend and long-term capital gain rates: 

• Tax rate is 0% for the 10%–15% brackets;
• 15% for the 25%–35% brackets; and 
• 20% for the 39.6% bracket

Per IRS Publication 544 , chapter 4, Reporting Gains and Losses: Personal-use property:  Generally, property held for personal use is a capital asset. Gain from a sale or exchange of that property is a capital gain. Loss from the sale or exchange of that property is not deductible. You can deduct a loss relating to personal-use property only if it results from a casualty or theft.

The sale of land, a second home, or inherited home is entered in the investment section of TurboTax. To enter:

• In TurboTax, search for this exact phrase: land sale.
• In the search results, click Jump to land sale, which should be at the top of your search results.
• Answer Yes on the Did You Sell Any Investments? screen.
• If you get the Summary of All Accounts screen instead, click Add Another Account.
• Follow the on-screen instructions to completion.