Thank you all for your informative answers!
Just to let you know my home and lot next door are separate. Building on the lot is a great idea, but we are moving to Bend Oregon,(due to a new job & kids need to be in school in the Fall) and we would like to sell the two pieces together so we can buy a new home there. I made a call to my CPA, and we'll see how it works out tax wise!! I would love to sell the two together if I can, but I'll leave it open for all options!
You are all great thanks!