Q: We own several acres of land in a rural area. The land includes a small house that will become our principal residence. If we sell off part of the land (but hang on to the house indefinitely), can we avoid gains taxes under the home-sale-gain exclusion rules? B.M., Burlington, Vt.
A: If you cut up your land and sell it independently from your home, you don't qualify for the home-sale exclusion, even if the home would otherwise qualify (i.e., it's been your principal residence for two of the past five years). The exclusion allows joint filers to shelter tax on the first $500,000 in home-sale gain ($250,000 for unmarrieds). The profit from your land sale will be taxed as long-term capital gain, with a maximum tax rate of 15 percent for most taxpayers. Tip: If you include your home in the land sale, the full amount of the sale may qualify for the home-sale exclusion.
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