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FAQs for Disaster Victims - Sale of Home

(8/3/07) Q: If a taxpayer’s main home was destroyed by a disaster and the taxpayer later sells the vacant land used only in conjunction with the main home, will gain from the sale of the vacant land qualify for exclusion under § 121 of the Code?

A: The destruction of a taxpayer’s home is treated as a sale of the home and any gain may qualify for the exclusion under § 121 of the Internal Revenue Code. Generally, a sale of vacant land that does not include a dwelling structure does not qualify as a sale of a taxpayer’s home. However, if the vacant land was owned and used by the taxpayer as part of the taxpayer’s main home and the sale of the vacant land occurs within two years from the sale of the main home, the sale of the vacant land and the sale of the taxpayer’s main home will be treated as one sale and the § 121 exclusion will apply to that sale if the taxpayer otherwise meets the requirements of § 121. See § 1.121-1(b)(3) of the Income Tax Regulations.

For example, if a taxpayer’s main home was destroyed, the taxpayer may exclude gain up to the limitation amount of $250,000 ($500,000 for certain situations involving joint returns) if the taxpayer otherwise meets the requirements of § 121 of the Code. If the taxpayer later sells the vacant land used in conjunction with the main home within two years from the date of its destruction (three years for Hurricanes Katrina, Rita and Wilma), the taxpayer is eligible to use any unused portion of the § 121 limitation amount to exclude gain from the sale of the vacant land.


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Page Last Reviewed or Updated: 29-Sep-2014