Land sell , tax question?

[one66stang]

I sold some acreage attached to my main residence. The selling of the land paid off my mortgage. There is about 25,000 equity left over. I'm trying to figure out what I'm going to end up paying taxes on and what I need to do to lower any taxes owed . Any advise.?

Thanks

[Throwin Darts]

I would guess you would take the sales proceeds from the land less the cost of the land = profit and then pay long or short term capital gains on it depending on how long you owned it.

if it was purchased along with the main residence you would have to allocate the cost of the land from the total cost of the land + main residence when you purchased it.

Since the sale of your main residence can most likely be a tax free event then in my accounting for the transaction the I would find a way to justify the highest cost basis possible in the land leaving the remaining cost tied to the main residence for use when you sell the main residence.

Don't forget to add in the cost of improvements that you made to the land into your land's cost basis in order to minimize taxes.

You paying off your mortgage on your main residence will play no role in your tax calculation of what you'll end up owing on the land sale.

[12RingKing]

I believe you can roll that equity from your land sale into another property and save the taxes on it, basically deferring the taxes.

I forgot the IRS form number. The excess you would pay taxes on, unless you put the money in some other sort of tax deferred retirement account.

This I'm not to sure about though. But I do know you can roll equity from property into other property and defer the taxes

[scottr325]

Ive been looking into this as I am currently selling some land and will have more to sell, my understanding is to defer the taxes you have to do a 1031 exchange and has to be done from the onset of you selling your land, otherwise you will pay capitol gains on the profit of the land verse what you paid, as thrown'Darts said you can have the value of your land be high it will decrease your appeared profit and decrease the tax amount and selling your homestead at some point doesn't hit you in the taxes unless you have a half million dollar house. Ill be following to see if I'm missing anything.

[one66stang]

I keep seeing the $500,000 number in google searches as far as anything owned under 5 years . If that is the case then I'm good. Just trying to figure out how much cash I have to roll towards the new place and not have any surprise come tax day.

[Grayson]

You need to consult with a CPA.

[CabezaBlanca]

I keep seeing the $500,000 number in google searches as far as anything owned under 5 years . If that is the case then I'm good. Just trying to figure out how much cash I have to roll towards the new place and not have any surprise come tax day.

Capital gains tax on anything over $500k if you are married, $250k if you are single.

[one66stang]

Capital gains tax on anything over $500k if you are married, $250k if you are single.

Yea that's what I'm seeing on google.

[one66stang]

You need to consult with a CPA.

I was hoping a TBH brother CPA might chime in.

[BrianL]

Keep out whatever tax bracket you are in. If you have owned it over 2 years, you will record profit as normal income. Less than 2 years it will be at capital gains rate.

Or that was the case a few years ago. Tax laws change, so if you need exact #, contact your CPA.

[Throwin Darts]

Capital gains tax on anything over $500k if you are married, $250k if you are single.

This doesn't necessarily apply to the OPs situation unless he sells his primary residence in the next two years.

Vacant Land Next to Home


If you have vacant land adjacent to the land on which your home sits, you can only claim the sale of that land as part of a sale of your home if ALL of the following are true.


•You owned and used the vacant land as part of your home.


•The sale of the vacant land and the sale of your home happened within 2 years of each other.


•Both sales either meet the eligibility test or qualify for partial tax benefits as described earlier.




If your sale of vacant land meets all these requirements, you must treat that sale and the sale of your home as a single transaction for tax purposes.


I pulled this from the IRS website. https://www.irs.gov/publications/p523/ar02.html


How you are supposed to treat the sale of the land and the sale of the home as a single transaction for tax purposes when they can occur in different years is beyond me.

What is really going to suck is if you don't have plans to sell your primary residence in the next two years and you have to pay capital gains tax on something that you could have avoided all together by just waiting to sell it along with the primary residence.

[one66stang]

Lol yea this is pretty confusing.

For reference

Bought 15 acres 12 years ago. Has house on it

Sold 10 of the 15 acres. Kept 5 acres and the house.

Paid off note and have $25k "profit"

[Throwin Darts]

Lol yea this is pretty confusing.

For reference

Bought 15 acres 12 years ago. Has house on it

Sold 10 of the 15 acres. Kept 5 acres and the house.

Paid off note and have $25k "profit"

You are calculating the profit incorrectly. Paying off the note has nothing to do with the profit you made. And if the note covered the full 15 acres and the home then you are way off.

Take the cost of the 15 acres with the house on it. Assign a portion of that cost to the 10 acres that you sold. I assume you had an appraisal done when you bought it since you financed it with a note so that will help you assign costs. Take what you paid for the 15 acres with house, subtract the cost of the house, subtract the cost of 5 acres that you didn't sell and what you're left with is the cost of the 10 acres you did sell. Then add to that cost any money you spent improving that 10 acres. That is your cost basis. Take what you sold it for and subtract your cost basis and that is your profit.

Here's another way to look at it. I buy a rifle for $10 in cash and sell it for $15. I just made $5. Now say I buy a rifle for $10 and get a loan for $7 and sell it for the same $15. My profit is still $5 and not $8 ($15 sales prices - $7 note).

[muzzlebrake]

Al Sharpton didn't pay any taxes. Why should you have to. Just tell them you are a civil rights activist.

[Burnadell]

You are calculating the profit incorrectly. Paying off the note has nothing to do with the profit you made. And if the note covered the full 15 acres and the home then you are way off.

Take the cost of the 15 acres with the house on it. Assign a portion of that cost to the 10 acres that you sold. I assume you had an appraisal done when you bought it since you financed it with a note so that will help you assign costs. Take what you paid for the 15 acres with house, subtract the cost of the house, subtract the cost of 5 acres that you didn't sell and what you're left with is the cost of the 10 acres you did sell. Then add to that cost any money you spent improving that 10 acres. That is your cost basis. Take what you sold it for and subtract your cost basis and that is your profit.

Here's another way to look at it. I buy a rifle for $10 in cash and sell it for $15. I just made $5. Now say I buy a rifle for $10 and get a loan for $7 and sell it for the same $15. My profit is still $5 and not $8 ($15 sales prices - $7 note).

This ^^^ is the correct way to handle it. As he mentions, your appraisal at the time of purchase should have assigned a value to the land, separate from your house. You can apply a per ac value (that you may need to defend to the IRS) to the 10 ac you sold. The difference between the sell price, net of any costs, and the purchased value of the land (plus any capital improvements) is your taxable long term gain which is 15% of your gain. As Dustin said, paying down the loan has no bearing on your gain or profit.