How to report sale of land that was gifted to me by my parents.

[jsnog88]

Back in 2001 my parents gifted a piece of raw land to me via quitclaim deed. Four years ago I began the process of having the land engineered and gathering town approvals to turn the land into a build-able house lot. Earlier this year I sold the lot. My questions are: 1) How do I report this sale using TurboTax?  2) What should my cost basis be, given that I spent much money for engineering, soil testing and town approvals to make the lot sell-able? 3) Can I use long losses from stock that I held long term and sold this year to offset capital gains from the sale of the land? If so, how would I report that using TurboTax?

[Opus 17 · Accepted solution]

Your cost basis is the price your parents paid for the land, plus the cost of any improvements.  Inspections and surveys that are needed to improve the land are allowed along with actual physical improvements like installing utilities.

The price your parents paid is probably documented in the county clerks' office or wherever land records are kept in your area.  Remember that, if you are audited, the IRS does not have to give you any adjustments to your basis that you can't prove, so hopefully you have good records of your costs.

The capital gains are a long term capital gain on schedule D.  You can offset the gain with other capital losses if you have any.  In Turbotax you would report the sale of the land as sale of investment property, you will be asked about the acquisition date, selling costs, improvements and so on.  (Be aware that last year, some sections of the program incorrectly asked for "purchase price" when it should have asked for "cost basis."  I don't know if that is changed for this year.)

You will need Deluxe or higher on the desktop program or Premier or higher in the Online program.