Your question is really about how to minimize the impact of federal taxes on the sale of land that you have owned for about 20 years. Since the purchase was made for investment purposes, you should be able to take the cost of buying and selling the land as a base adjustment (term used to describe the cost of the land) that you have in the country. These costs may include the cost of purchasing title insurance, escrow fees, transfer taxes, real estate agent fees, and other costs necessary for the marketing and sale of the property. Excellent article. There is another tax deferral strategy based on section 453. When selling an investment property, no 45- or 180-day periods, no loan-to-value ratio and none of the other 1031 restrictions. Sell today, defer taxes today and have unlimited time to buy more properties. If a landowner wants to sell and retire and doesn`t want more real estate, they can still defer capital gains tax, state tax, depreciation refund, and Obamacare tax, and receive higher retirement income than if they paid taxes first. What if a high-end luxury broker sells a large residential property that creates a tax liability that could be hundreds of thousands, if not millions, of dollars, which is a problem for sellers? With section 453, sell the residence today and defer taxes today. No need to turn the property into an investment property for a few years first. www.cresknowsrealestate.com cordially. Depending on what the buyer plans to do with your land, you may not need to sell it at all. Many buildings are built on leased land.

The landowner retains the land, but agrees that the landlord may use it for a certain period of time in exchange for payments for a lease agreement. With valued shares, you can sell your shares over several years to spread the capital gains. Unfortunately, investment properties do not have the same luxury; The total amount of profits should be applied to your taxes in the year the property is sold, unless certain measures are taken to minimize this risk. If an investor uses IrS Code Section 1031 to detect a “similar” exchange when selling an investment property, capital gains can be carried forward by purchasing a similar investment property. You will need to speak to an accountant or registered agent to discuss what happened to the land and how you owned it to determine if any of the expenses can be used to reduce the taxes you may now owe for the sale of debt. all. Other expenses related to potential land improvements and zoning issues could be capital expenditures if the lot had been held for capital purposes. However, if the property was purchased for personal use and those plans were for your personal home, we doubt you could use those expenses to reduce your taxes. If you sell your land at a price lower than what you paid and less than the value after adding up the depreciation you claimed, you will not have to pay capital gains tax. While this isn`t always a desirable option, it can be a way out of the cost of owning land for which you have no other use.

The Internal Revenue Service calculates capital gains tax on almost everything you sell for a profit. Land, whether developed as a habitable zone or left as an infertile plot, falls under the heading of tax fixed assets. As with the sale of shares or other financial assets, land can be taxed at short- or long-term rates, with long-term interest rates being more favorable. Since 2013, your income has played a role in determining your tax rate, with higher-income taxpayers more likely to have a higher tax rate. If you do not qualify for the exclusion of the principal residence – for example, because you do not live on the property or because it is free land – you may still be eligible for the long-term capital gains tax rate instead of the normal income tax rates. This will save you money because capital gains tax rates are regular lower income taxes – 15% for most taxpayers, 20% for some high-income taxpayers, and zero percent for some low-income taxpayers. To determine capital gains on a property sold that year, can I deduct property taxes paid during the ownership period? -Jonce Dear Jonce, someone has done his homework! Nice work that eradicates the means allowed to reduce the capital gains from the sale of land. The answer to your question is yes. You can “deduct” property taxes paid as part of owning a parcel of land in the year the land is sold, provided the land was empty and was not used for specific purposes such as grazing, farming, etc.

But as with most tax benefits, there is a catch. First, the claim for property taxes paid in the year in which a vacant lot is sold is not in itself considered a “deduction”. It is a choice to capitalize on annual property taxes paid on free land instead of claiming property taxes paid as a deduction. Essentially, an expense is capitalized by adding the amount of property taxes paid to the base of the empty property. (Below is a brief explanation of the meaning of the base, as it refers to an empty and unproductive earth.) In addition to deciding to capitalize on property taxes paid, a taxpayer can capitalize on mortgage interest paid on the property during the year. Note that each year, property taxes are claimed as a deduction on your tax return, the choice to capitalize the property taxes paid is not available. Be prepared, because that`s where the hook comes in, and like a patch that`s been on for too long, it could sting. The election must generally take place in the year in which property taxes are paid. This is not a one-time choice, which means that the election must take place every year that a taxpayer wants to capitalize, rather than claiming a deduction, even if the taxpayer has not had enough deductions to register them.

The choice is not automatic and is made by inserting a return when filing your tax return stating that you choose to capitalize on property taxes paid in connection with the vacant/unproductive property you own. The election must include the location of the property and the amount of property taxes paid. So, if you`ve owned the land for several years and haven`t made the choice each year, you may not be able to add the property taxes paid in previous years to the base. There may be some good news here. The IRS has the discretion to grant a taxpayer a reasonable extension of time to make certain tax choices that were not requested in a timely manner, provided that the taxpayer acted reasonably and in good faith. To file the application, a judgment by private letter must be submitted to the IRS Office of Chief Counsel. A private letter judgment is a formal request, and there is a fee to file one with the IRS. The fees are not cheap and can cost up to $38,000. In addition, it can take months for the IRS to release its response.

For taxpayers with gross income of less than $250,000, the fee can be reduced to $3,000, which is still a significant amount for most taxpayers. Due to the high cost of requesting a private postal decision, a taxpayer should carefully consider the pros and cons and determine whether the cost is worth the tax savings. It is recommended that a taxpayer seek the advice of a tax professional when considering requesting a private postal decision or making a capitalization choice. A word to determine the basis of your country If you bought the land, your base is the amount you paid, plus some closing costs. The basis of inherited property is usually the fair market value of the property at the time of the owner`s death. In general, you can get this information from the person who processed the deceased`s estate. If the land has been given to you, determining the basis is a little more complicated. The basis of the given property is determined whether there is a profit or loss on the sale of the land. To calculate the basis of the given property, you need to know the basis of the land in the hands of the person who gave you the property, also known as a donor. If the donor purchased the property, their basis would be the amount they paid for the property, including property taxes paid or mortgage interest selected for activation. If the property had been given to several different people over the years, then the donor`s base would be what the original person who bought the land paid.

In addition to knowing the donor`s base in the country, you need to know what the fair market value of the land was when you received it as a gift. The fair market value of the property on the day you received the property as a gift can be determined by a chartered appraiser. If the land is sold at a profit and the fair market value of the land is less than the donor`s base, the donor`s base is used to calculate the profit. .