Capital Gains Tax On Property With Primary Residence And Farm

Added January 19, 2009 by Ilyce R. Glink

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Summary: Just because there is farm land on the property with your primary residence, doesn't mean you can't receive capital gains money tax-free from the sale of the land. As long as the property has been your primary residence for 2 of the past 5 years, you can still receive capital gains money when you sell your primary residence. Capital gains is $250,000 if you're single and up to $500,000 if you're married, as profit from the sale of a primary residence.

Q: My wife and I live on a 25-acre property. Approximately 10 acres are being farmed, however, I am not receiving any income from the farming because I allow a neighbor to farm it rent free.

Someone told me that because the property is the size it is and is considered farm property, we could not take the $500,000 deduction when we sell the property.

My understanding is that you can take the capital gains deduction on your primary residence as long as you live there for 2 of the previous 5 years.

A: If you live on the land as your full-time residence, no matter how big it is, my understanding is that it's your primary property. And since you're entitled to take to $250,000 (up to $500,000 if you're married) in profits tax-free when you sell your primary residence, provided you've lived there for at least 2 of the past five years, I don't see why you should have a problem.

For more details, consult with your tax advisor. You may also be interested in IRS Publication 523 "Selling Your Home," which you can get for free at IRS.gov.

Jan. 19, 2009.

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