Tax on a property sale

Dear Tax Talk,
I have a story similar to one you've heard before, but I would like a little more information. I have five acres with a house on the property. I am splitting two acres off and selling bare land. Once you figure out the capital gain, let's say it is $144,000, my questions are:
1) Can I purchase another rental or another house for at least that amount to avoid paying capital gains tax?
2) How long do I have to pay the 15 percent capital gains tax?
3) How long do I have to keep the rental purchase to avoid another capital gains tax?
Thanks for your help. -- Sam

Dear Sam,
I guess you're referring to my Oct. 15 column about the sale of a portion of land pertaining to a residence. As I noted there, you don't qualify for the home sale exclusion on the sale of property that adjoins your main home. You want to know if you can use the proceeds of the sale to do a like-kind exchange. A like-kind exchange involves the exchange of investment property for other investment property of a like kind.

Investment property is property held for investment. When you bought the five acres, it was probably your intention to live there so that the property would not be considered investment property at the time you moved there. Although the property may have looked like a good investment, the Internal Revenue Service would argue that that was not your primary intent. Some later event would have had to transpire to change the nature of the property from personal to investment. Without this changed circumstance, the split acreage does not qualify for like-kind exchange.

Since this is very subjective, you probably should consult a good tax professional to analyze the situation. For example, Revenue Ruling 57-244 discusses changed circumstances with respect to property acquired for personal reasons.

Assuming the property does not qualify as investment property, the 15 percent long-term capital gains tax is due when you file your tax return for the year of the sale.