Question

Basis in land after home was destroyed

Forum|Forum|3 years ago
January 27, 2023
1 reply
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Would appreciate opinions on the following as I can't seem to find a clear answer:

Primary residence was destroyed in 2018. The basis was 150K (50K for land 100K for building/improvements)

Insurance proceeds for the building in the amount of 200K was received in 2018 and were used to buy a new home elsewhere. No gain was recognized due to primary residence exclusion.

In 2022 the vacant land was sold for 100K.

Insurance proceeds typically reduce basis, but since only the structure was insured does that mean that the land still has the 50K basis? Or is it 0 basis since the insurance proceeds> total basis of land + building? It seems like there is essentially two transactions with the first being for the involuntary sale of the building itself (destruction/insurance payout) and the second being for the sale of the land.

Tax Advice

J

JamesG1

The insurance covers the building / improvements not the land.

The original basis was $50,000 for land and $100,000 for the building/improvements. That would mean the gain from the insurance proceeds was:

Insurance proceeds $200,000

Building basis $100,000

Gain $100,000

(gain likely not taxable due to the exclusion)

The second transaction would then be:

Land sale proceeds $100,000

Land basis $50,000

Gain $50,000

I assume that the sale of the land was no longer related to the sale of your home because you now lived elsewhere. A similar but not perfect example is listed in IRS Publication 523.

However, if you move your home from the land on which it stood (meaning you relocate the actual physical structure), then that land no longer counts as part of your home. For example, if you move a mobile home to a new lot and sell the old lot, then you can’t treat the sale of the old lot as the sale of your home.

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