§ 10005. Basis, gain, and holding period

(a) The provisions of Title 26 of the United States Code shall determine the basis of land sold or exchanged except basis for land transferred by a mortgagee who acquired the land by foreclosure or transfer in lieu of foreclosure shall be the amount of debt due the mortgagee, increased by the costs of acquisition, and decreased by the amount of any tax benefit due to bad debt loss on the mortgage debt.

(b) The amount realized from the sale or exchange shall be the full actual consideration therefor, paid or to be paid, including the amount of any liens or encumbrances on the land existing before the sale or exchange and not removed thereby. The amount realized from the sale or exchange shall be the gross amount thereof, reduced by any reasonable expenses of sale and commissions. However, if the seller has owned the land for less than one year, the amount realized from the sale or exchange shall be the gross amount thereof, reduced by no more than a total of 12 percent by any expenses of sale and commissions. In the event that a sale includes land and buildings or other structures, the amount realized shall be allocated between the land and the buildings or other structures on the basis of fair market value.

(c) The taxable gain from the sale or exchange is the amount realized minus the basis of the land as determined under subsection (a) of this section. No gain shall be recognized in cases where gain is not recognized under Title 26 of the United States Code, as amended, in relation to the sale or exchange of capital assets.

(d) The land sold or exchanged shall be deemed to have been held as determined under Title 26 of the United States Code. If two spouses are tenants by the entirety, there may be added to the holding period the amount of time the land was held by one spouse alone before that spouse created the tenancy by the entirety. Notwithstanding any provision to the contrary under Title 26 of the United States Code, if a tenancy by the entirety is dissolved by reason of death or divorce, the holding period during the tenancy by the entirety will be added to the holding period of the spouse subsequently owning the property in his or her own name. For the purposes of this subsection, land devised to or inherited by a surviving spouse or land awarded to a spouse upon dissolution of civil marriage shall be treated as though it had been held by two spouses as tenants by the entirety.

(e) The taxable gain under this chapter from the sale or exchange of land shall not be reduced by any losses incurred in other transactions.

(f) Notwithstanding any other provisions of this section, land acquired from a decedent, or an estate, or sold by an estate, shall have a holding period commencing as of the date of death of the decedent, and its basis shall be the fair market value of such property as of the date of death of the decedent, or alternative valuation date as finally determined under Title 26 of the United States Code for the federal estate tax. (Added 1973, No. 81, § 8, eff. May 1, 1973; amended 1973, No. 187 (Adj. Sess.), eff. March 30, 1974; 1977, No. 240 (Adj. Sess.), § 3, eff. April 17, 1978; 1979, No. 75; § 1, eff. May 10, 1979; 1983, No. 59, § 8, eff. April 22, 1983; 1987, No. 64, §§ 7, 13, eff. June 1, 1987; 1991, No. 186 (Adj. Sess.), §§ 31b, 31c, eff. May 7, 1992; 2009, No. 3, § 12a, eff. Sept. 1, 2009.)