gains on land sale and purchase

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sam3b
Posts: 1
Joined: Mon Jun 08, 2015 10:18 am

gains on land sale and purchase

Post by sam3b »

Hi,

I have a primary residence on a large piece of land. I'm selling a lot from it (say for $300k) and at the same time buying an adjacent lot (say for $100k).

How does capital gains work in this case? Can I claim the sale was for the difference ($300k-$100k=$200k) and then only pay gains based upon that figure?

thx
Gropes & Ray
Posts: 1094
Joined: Wed Jul 16, 2014 7:28 am

Re: gains on land sale and purchase

Post by Gropes & Ray »

Look into like-kind exchanges (commonly called 1031 transactions). http://www.irs.gov/uac/Like-Kind-Exchan ... ction-1031

You may not qualify because part of this property is used for a residence, but this is a good place to start your research.
Lafder
Posts: 4127
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: gains on land sale and purchase

Post by Lafder »

Capital gains tax will be due on the difference between the sales price and your (cost basis + improvements + closing costs).

Remember the cost of the new land becomes your cost basis for a future sale and capital gains owed there. So in that way you want a high cost basis on the new purchase to minimize future tax due.

Your accountant can help with the cost basis on the sale. It sounds a bit complicated if it was part of a larger parcel that was divided. Were there any costs in dividing? Would that add to your cost basis? The higher a cost basis you can legitimately come up with the better for you :)

Remember that an exchange only delays paying capital gains, it does not eliminate it, and it may or may not be possible in this case.

lafder
TheGreyingDuke
Posts: 2219
Joined: Fri Sep 02, 2011 10:34 am

Re: gains on land sale and purchase

Post by TheGreyingDuke »

As stated above, you will owe capital gains tax on the difference between your cost and the sale price. If you bought the entire parcel with a house on it that is the basis for the entire property. Now you need to figure out what the piece you are now selling was worth at the time of the purchase. There is a good chance that the cost will be quite low as compared to the entire purchase price.

I don' think, except for the exchange mentioned above, that there is any way to avoid the tax. Depending on your situation it maybe advantageous to get paid in installments, therefore reducing each year's capital gains; look here http://www.irs.gov/publications/p537/ar02.html for the details. This is especially important if the gains will push you into a higher bracket.
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