Partial Sale of property

Forum|Forum|5 years ago
June 8, 2020
1 reply
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They are reconstructing a road in front of my house and the Town had to buy a small portion of my property for the project (the project is run by the state and funded by federal, state and town monies). They sent me a check and we went through the closing, etc. Then I received a 1099 form for the amount of the sale and it showed the amount in Box 7 which is "Non-Employee Compensation." So in Turbo Tax, when I enter the 1099 form it appears as income that I have to pay taxes on. However, I also received a form to fill out just recently "NY State TP584" which looks like a tax exemption form on this sale. Since the property that I sold a portion of is my primary residence I don't think I should be paying Income Tax on the amount I received. If I were to sale the entire property, it would not be taxable. How do I handle this in Turbo Tax, I have not filed yet for 2019. Thanks,

RobertG

An involuntary conversion occurs when your property is taken by the government and you receive money in payment.

Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home.

Involuntary conversions of private homes are an exception to the rules. According to the IRS, if the property you lose to involuntary conversion is your primary residence, generally, you will not have any tax consequences, even if you don't purchase a new home and realized a capital gain or loss.

You will have to reduce the basis in your home by the amount you received from the government.

You need to enter the 1099-Misc as income, because the IRS has a matching program to see that it is reported.

To enter the 1099-Misc into TurboTax you should enter the 1099 once as a positive number and once as a negative number to cancel out the gain:

Type 1099-misc in the search box.
Click on the Jump to 1099-misc link.
This will take you to the 1099-MISC screen.
Enter the information from your 1099-Misc as a positive number.
You will be asked for the reason for the 1099-Misc. Enter Involuntary Conversion of residence or something similar.
You will be asked if it involved work that's like your main job. Say no.
You will be asked if it involved an intent to earn money. Say no.
You will be asked if you had another 1099-Misc. Say yes, then reenter the 1099-Misc with a negative number equal to the amount you received, to cancel out the first 1099-Misc entered.

In this way, you will not be taxed on the income.

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ChuckMinVA

Partial Sale of property

The State (Virginia) bought a portion of my property for a road project (Dec 2021). They sent my wife and I each a 1099-S for 1/2 the total amount of the purchase. The purchase included a temporary easement, funds to replace my fence, cost to replace plants and erect a temporary fence while construction is ongoing. How do I handle this transaction in Turbotax? It only seems to do sale of the entirety of my home.

RobertB4444

Enter it as though it were a sale of your entire home. When it asks you the cost basis of the property in question enter the exact amount of the 1099-S. It's a zero sum transaction and there is no tax AND you don't use your primary residence exclusion which you may need in case you decide to sell your home in the next two years. When putting the name of the property for the transaction enter it as "your address, easement".

The next part is important. The basis that you currently have in your home is the amount that you paid for your home plus any major improvements. You will need to reduce that basis by the amount on the 1099-S as well in case you sell it. This will increase your gain later but hopefully not enough that you aren't required to pay taxes on the sale of it.

@ChuckMinVA

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