Principal Residence and the State of TN / Killin Me

[RitaB]

Client built principal residence 1998 on six acres tract. Lives there still. State is buying her out for road construction purposes. State paid off her mortgage 2014, $90,000. She is moving house a couple miles down the road to another site in 2015. She says state is to give her another $85,000 in 2015 after she gets house moved.

Is this a sale of principal residence for $90,000 in 2014? $175,000 in 2014? $175,000 in 2015? Divide it up and sale of residence in 2014, land in 2015? Since she's keeping the house, is it sale of land only and entire gain is taxable?

The sale price was the same whether she moves the house or the state dozes it. It seems to me at least some of this is excludable, maybe all, and she is getting a new residence whose cost is the moving expense and new site prep.

But OMG it's April.

[rfassett]

http://eminentdomainandbusinessrelocationconsulting.com/eminent-domain-acquisition-payments-relocation-payments-and-taxes/

 

Found this with a quick search.  It is not written by a tax person but it might help your thinking on this issue.

[RitaB]

But OMG it's April.

Plus my daughter did the grocery shopping and I have been drinking decaf for two days and just figured it out.

[Lynn EA USTCP in Louisiana]

one client sold the lot adjacent to their principal residence in 2013 then sold their principal residence the next year. Both sales qualified for the taxfrree principal residence sale - there is a special rule for this circumstance IF both sales occur within a 2 year period . I have the documentation at work . Will post when I get to my office.

[rfassett]

Plus my daughter did the grocery shopping and I have been drinking decaf for two days and just figured it out.

When I was much, much more caffeine addicted, I was at an all-day CPE meeting that was serving decaf, unbeknownst to me.  By the mid-morning break I had a splitting headache that would not quit.  When I realized what was going on, I first got my fix - and then I went looking for someone else's day to ruin.  That just wasn't right.

Edited April 1, 2015 by rfassett

[RitaB]

When I was much, much more caffeine addicted, I was at an all-day CPE meeting that was serving decaf, unbeknownst to me.  By the mid-morning break I had a splitting headache that would not quit.  When I realized what was going on, I first got my fix - and then I went looking for someone else's day to ruin.  That just wasn't right.

I could have died.

[RitaB]

one client sold the lot adjacent to their principal residence in 2013 then sold their principal residence the next year. Both sales qualified for the taxfrree principal residence sale - there is a special rule for this circumstance IF both sales occur within a 2 year period . I have the documentation at work . Will post when I get to my office.

Thank you, Lynn, I found this in Pub 523:

http://www.irs.gov/publications/p523/ar02.html#en_US_2014_publink10009003

"Home Moved to New Location

If you move your home from the land it was on, that land no longer counts as part of your home. For example, if you move a mobile home to a new lot and sell the old lot, you cannot treat the sale of the old lot as the sale of your home."

However, this seems to be only one (unusual) transaction, and NOT moving house, THEN selling land, you know?

Edited April 1, 2015 by RitaB

[RitaB]

Soooooo, what do y'all say? Sale of principal residence 2014? Whole ball of wax? All $175,000? The deal was made 2014, and state is holding some money till 2015, but it's just like with an installment sale - she can elect to report the whole deal 2014? And the basis of the new principal residence is going to be her costs to move house and prep the site? And if the state issues a 1099-S in 2015, I'll just enter that puppy, and back it right back out with an explanation? Is that what you all said?

[Pacun]

Was the 2014 a gift? I believe you have to read the document that the government presented to her for signature. I would report the sale of her house in 2015.

Edited April 2, 2015 by Pacun

[jklcpa]

Soooooo, what do y'all say? Sale of principal residence 2014? Whole ball of wax? All $175,000? The deal was made 2014, and state is holding some money till 2015, but it's just like with an installment sale - she can elect to report the whole deal 2014? And the basis of the new principal residence is going to be her costs to move house and prep the site? And if the state issues a 1099-S in 2015, I'll just enter that puppy, and back it right back out with an explanation? Is that what you all said?

 

 

I don't know.  Does the contract say anything about the title of the house?  Sec 121 covers  the nonrecognition of gain on sale of a personal residence and does have a provision linking it to sec 1033 that includes involutary conversions.  However, it seems like the state didn't take title to the house if they are allowing your client to move it. Or, if the state did take title and now she has moved it, how does she get a title for the "new" house?  Maybe that titling answer will help you decide which way to go.  I was leaning toward this being an involuntary conversion of the land only, but I really don't know!!!!  Sorry I don't have a better answer without doing research. 

[RitaB]

Don't research, that's my job, I just thought somebody may have dealt with this before. I will figure it out, and she has not shown me any paperwork from state, I have asked for it, so I guess I will put this in her lap for a while. No worries.

[kcjenkins]

Soooooo, what do y'all say? Sale of principal residence 2014? Whole ball of wax? All $175,000? The deal was made 2014, and state is holding some money till 2015, but it's just like with an installment sale - she can elect to report the whole deal 2014? And the basis of the new principal residence is going to be her costs to move house and prep the site? And if the state issues a 1099-S in 2015, I'll just enter that puppy, and back it right back out with an explanation? Is that what you all said?

I'd vote for this treatment, but it's your call, Rita.