Posted by Diane (TX) on November 14, 2002 at 20:03:36:

Your basis could be exactly the same, but that would be a coincidence. What you need to do is determine how much of the whole was sold. If you owned 100 square feet, and you sold 10 square feet, your basis in the 10 square feet sold was $14,000 ($140,000 times 10% sold).

This is a completed transaction. It’s too late to determine the best tax deferral strategies now - instead, you’re determining the results. The result is that you need to use a supportable allocation for the cost basis. The cost basis allocation should be pro-rata unless you have very unusual circumstances. If the land you sold was a hill with a view, this might support a higher allocation.

Re: how to account for city payment - Posted by Diane (TX)

Posted by Diane (TX) on November 14, 2002 at 18:40:41:

If you sold a small part of the property, your income is the amount received less the allocated basis of the land sold. For example, assume your total land cost in the property is $100,000. If you sold 1/20 of the land, your basis in the piece sold is 1/20 times $100,000, or $5,000.

Reduce your remaining land basis by the amount sold.

Your answer makes perfect sense. So the income can be offset this year by taking it off the cost basis?

If the property is 5 years old, can the offset cost basis be exactly the amount of income? Example, Original cost is $140,000, income this year is $14,000. Can the new cost basis be $126,000 after the $14k offset? (Which will have an effect when the property is sold) Is this the best strategy to defer tax?

One more question - what form will this be recorder on 4797?