Capital Gains Basis - Posted by zbadboy

Posted by Randy (SD) on February 17, 2006 at 11:27:51:

Visit www.IRS.gov or seek professional tax advice, in general (to the best of my recollection) since the adjoining parcel was part of a package deal and acquired at no additional cost (assuming you couldn’t have purchased the home without the adjoining parcel) your basis is established by the fair market value at the time you acquired it, you may be able to get comps or take the tax assessed value times 1.25% or whatever the going rate is in your area.

You are correct in assuming all costs associated with installation, construction and improvements would be included in your cost basis. Regarding your question of work (tractor work performed by a friend) at actual cost vs. going rate, the answer is based on your tolerance for risk vs. reward. Obviously you can claim any “reasonable expenses” and you may get away with it, if you happen to be one of the fortunate ones chosen for an IRS audit and cannot document the expense in addition to the additional tax you face interest and penalties that could be substantially more than any tax savings by falsifying tax returns… FYI, I make a habit of never publicly admitting to tax fraud (like posting on a public forum).

Capital Gains Basis - Posted by zbadboy

Posted by zbadboy on February 17, 2006 at 10:15:08:

I bought a home 3 years ago that had an adjoining 1/2 acre parcel (seperate APN) that was included in the home that I bought. I recently completed installation of a manufactured home on the lot. How do I establish my basis for capital gains? I would assume all receipts/costs associated with installation/construction/improvements would be included. If lets say tractor work was done on the side by a friend for minimal money, can I include the going rate hired tractor work would have cost? Finally, is the 1/2 acre value based on todays 1/2 acre vacant land value? Or is the price back dated to 3 years ago. How closely is capital gains basis monitored? Is there any required documentation? Holding period prior to sale? I know it is in my best interest to establish the highest base but want to be correct as well.

Thanks

Jeff