I bought a two pieces of property for one set price. If sold apart, how will capital gain taxes be calculated?

Question

So in terms of a 10-31 exchange, how will it be determined how much I paid for each parcel?

Answer 1

so you bought both parcels together at one price, but both parcels were used as investment properties? that is the key question. any portion of what you bought (and now sell) that was not your primary residence, made income, and you could take depreciation on would be considered investment only.

if both are entirely investment properties:

let's say that the two combined cost $1 M. you sell one now for $1 M. 50% of $1m = $500k, which is your original cost basis. to that you will add capital improvements (not repairs, as a rule), you must subtract the value of the land, which is not depreciable, and you must subtract all depreciation taken on THAT half. you deduct costs of sale on that part too.

since you essentially paid $500k for that one part of the whole thing, and you are getting $1m, your gross gain is $500k. however, you should speak to your CPA/estate planner and real estate broker and trader to determine how you offset the gain of $500k plus the numbers i talk about in the above paragraph.

it is not as easy as splitting the parcel into one half and one half, because it depends on what part of which part you used personally and which you used as investment. each case is different.

one thing to know before you begin to sell are the rules that you must go by in order to do a 1031 starker exchange to DEFER capital gains taxes (you can defer over and over again as time goes on). you only have a given number of days from your date of closing to designate the parcel you will use to replace the investment, so many days to close on it, and so on. you also need to reveal to the purchaser that you are doing a 1031, and upon sale of the half you are selling, he just signs documents attesting that he knows about your 1031.

you must also realize that any gain that you don't want to pay taxes on today MUST be placed, upon closing, into an escrow account which then will be used to purchase your next investment real estate parcel. if you take any money out of that gain, it's called "boot," and you can sustain penalties if you do that. but a trader also knows how to handle boot in some creative ways, but i personally have not done that, so i'd get advice from a starker trader.

use your experts to do this. do not go it alone. sorry if i made this more complicated than what you asked for.

Edit: square footage only applies in reference to land. unimproved real estate has no structures on it. it is simply vacant land. it may be seen as an investment property. you do not have to purchase vacant land only as "like kind" real estate; all you have to do is to buy investment real estate with your gain. improved real estate has structure(s) on it. items of those structures are depreciable, which means that they go onto a depreciation schedule, the length and amount you deduct from your income taxes depending on what the irs says is the schedule for x, y, and z. land is never, ever depreciable. so, in calculating land value on improved real estate, you look at your real estate tax bill. the fraction that represents land is that which you just do not depreciate and that is all.

Answer 2

square footage if its is real estate.