Home Exclusion Rules

[peggysioux5]

Taxpayer buys home that sits on 50 acres and he decides to use 45 of those acres for ranching.  If taxpayer prorates mortgage interest between home/5 acres and remaining 45 acres and applies the mortgage interest from acreage to Farm Schedule, when he decides to sell 10 years later, will the gain of the sale pertaining to the acreage be excluded from the home exclusion deduction?

Peggy Sioux

[Lion EA]

His residence acreage will be the area he used for his home and personal use. The business acreage will be the area he used for his ranching activity. He will report two sales.

[peggysioux5]

25 minutes ago, Lion EA said:

His residence acreage will be the area he used for his home and personal use. The business acreage will be the area he used for his ranching activity. He will report two sales.

That was my thinking as well but wanted input to confirm.  So would you (or any other tax experts) also agree with the below :

"If taxpayers ceased using the acreage for business use two years prior to sale (and continued to live on property but converted the 45 acres to personal use), then the property as a whole would be included in home exclusion deduction."

Thank you for your input.

Peggy Sioux

[Lion EA]

I haven't had to research that scenario for a client.

Don't forget you might have depreciation you can't exclude if your client built (or purchased with the land) a barn, fences, drainage tile, or anything else that could be depreciated on his ranch.