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I have been offered 40k for a section of my land that is considered a side lot to my house. The buyer is going to work and pay all cost in separating the land. I plan on moving and renting my house. I was wondering of any implications I may face. Will the sale of my side lot be considered capital gains? Is there anything I have to do my bank and insurance? Thanks in advance.

New Hampshire USA

Tom

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    Welcome to Personal Finance & Money! Could you edit your question to add the relevant country tag, e.g. 'united-states'? – GS - Apologise to Monica Jun 11 '15 at 6:15
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The insurance company will want to know about the change. They don't generally insure land, but it would be best to let them know. It could be possible that it could change the rate due to their formulas, and that the relationship of the property to the closest hydrant could change.

If the bank has a loan they will want to know because you no longer own as much land. That land was part of the collateral used in case you default. How they handle it will be based on how the loan was structured.

Regarding taxes. If there are capital gains taxes in your jurisdiction the sale might qualify. You are selling the land, it had a value when you bought it. So if you made a profit on that section of land the government will want what the law specifies they should be given. If your jurisdiction gives you a tax break for selling your principal residence, this wouldn't help you because you sold land not a residence.

Because you plan on converting the main lot and house to a rental you will need to know what the value of the house and land is to determine what you can depreciate during the rental period. At the time of sale that would be a good time to tart that process.

The part that will remain your property must still meet any zoning regulation and building requirements. For example there can be regulations that state how close the structure can be to each edge of the property line. The regulations may also specify the angle between the edge of the property and the highest point of the structure, meaning a building can be taller if it is set farther back.

Some jurisdictions specify a minimum lot size which you must still meet. That regulation could have changed over the years so your smaller lot might not still meet the size specified by the law.

Some regulations specify that the remaining lot still must have access to a road. If there is no road access to the remaining property, a permanent easement may be required to act as access. The property records of both lots would have to be modified to show that access.

Some jurisdictions also specify what percentage of land can be covered by impervious surfaces, the lot must still meet those requirements.

You will need to have an attorney experienced in these types of transactions make sure that it meets all the local requirements.

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  • Thank you for your response. I know nothing about depreciation during/while renting a property, I guess I will have to look into that. The person buying the lot is building a house across the street and knew I had a buildable lot so he approached me a while back. He is sure it is buildable and will be going through the needed steps to separate the lot and he is paying for all the costs. The lots are along the road so road access is not an issue. Can the bank deny me the right to sell that portion of my property? Thank you again, Tom – Tom Cifelli Jun 11 '15 at 14:45
  • I heard that if I pay capital gains it will only be on what I make off the property vs. what I bought it for. This lot was part of my main house so the lot did not have a value alone. I guess I need to figure out how to put a value on the land so I do not pay capital gains on the whole sale. The value of my house has not gone up much since I bought it a couple years ago. Any advice in this area would be helpful. Thanks again, Tom – Tom Cifelli Jun 11 '15 at 23:10

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