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My residential property currently qualifies for the IRS Federal tax exclusion of $500,000. I'm considering demolishing the house and legally subdividing the lot for purposes of building two new homes. Will the basis of the existing property be split between the two separate properties upon subdivision?

If I move back into one of the homes, is it still eligible for the $500K tax exclusion on the gain if I sell it quickly or do I have to reestablish the 2 year residency?

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    Just to be clear, you're living in the home now (and have for 2+ years), want to demolish it, build 2 homes, and sell each home separately (two different buyers and transactions)? – Joe Aug 29 '16 at 18:29
  • I have no references, but the answers are no, no, and yes. Try searching on "irs real estate exclusion tear-down" for some related references. – mkennedy Aug 30 '16 at 19:38

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