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We just sold our house and vacant land, which we split into two parcels for sale to separate buyers. The land sale closed at the very end of 2020, while the house sale closed a couple weeks later in early 2021.

Capital gains for the sale of the vacant land appears to be excluded under the home sale exclusion (meets all the criteria), and is also covered since it occurred within two years of the sale of the home itself.

Since the land sale occurred in an earlier tax year than the house sale, are we able to claim the exclusion when filing our 2020 taxes, or do we have to pay capital gains for the land sale in our 2020 taxes, and then wait until we file the 2021 taxes to go back and file an amended return for 2020 and receive refund of overpayment?

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Since the land sale occurred in an earlier tax year than the house sale, are we able to claim the exclusion when filing our 2020 taxes, or do we have to pay capital gains for the land sale in our 2020 taxes, and then wait until we file the 2021 taxes to go back and file an amended return for 2020 and receive refund of overpayment?

The IRS can't know that the second part of the transaction will ever take place. The deal could fall through, you could change your mind...

Therefore the requirement is to submit the first part of the transaction, under the assumption that the second part never takes place. Pay the taxes.

Then after the second part takes place, amend the taxes from the first transaction, and file the proper forms for the second part when they are due.

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  • Thanks for this response! The second part has actually taken place now -- signed, sealed, and delivered. So does your advice still hold true? – severtki Jan 9 at 14:43
  • The key date is December 31st. If part 2 happened after the new year, they will be spread over two years of forms. – mhoran_psprep Jan 9 at 17:45
  • IRS publication 523 says eligible if: Vacant land next to home. You can include the sale of vacant land adjacent to the land on which your home sits as part of a sale of your home if ALL of the following are true. You owned and used the vacant land as part of your home. The sale of the vacant land and the sale of your home occurred within 2 years of each other. Also, if your sale of vacant land meets all these requirements, you must treat that sale and the sale of your home as a single transaction for tax purposes, meaning that you may apply the exclusion only once. – severtki Jan 10 at 18:18

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