My father has owned 6.7 acres of land for about 5 years now. It has no electric, septic, etc. and its just vacant. He bought it for 36.5K and now its worth about 110K. How do gains work on vacant land?
Nate-WI
Not different than if it were ABC Corp stock. If he merely sells it…long term capital gain taxed at 15% (net of any other capital losses he may have). The gain is the amount he receives (sales price less costs of the sale) less what he paid for it, referred to as his “basis” (purchase price plus any acquisition costs).
If he wants to postpone or defer the gain, he could do a §1031 Likekind Exchange and defer the gain until later. This would require purchasing another property. If he wants to simply cash out, it’s as described above.
If he chooses the latter, hire a professional who specializes in §1031 transactions. He’s not allowed to sell the property, take possession of the cash and then go out and purchase another investment property and defer the gain. He would have to use a “Qualified Intermediary”. Seek professional advice.
HTH
yeah it does. I was thinking along SFR rules where if you live in your home for over two years the gains are not taxed and its mine to keep. Just wasn’t sure how vacant land worked.
Nate-WI
Don’t we wish?? But then how would we fund this great country we live in?
And I mean that, seriously. Taxes are the price we pay to not have to live like a lot of the rest of the world. A tangent, I guess.
Yeah, this would probably fall under the realm of capital gains for an investment property.
A lot of people do an exchange here.
Here’s a capital gains tax calculator:
http://www.1031store.com/resources/1031_capital_gains_calculator.php
Here’s the actual calculation for you:
http://www.1031store.com/resources/1031_capital_gains_calculator.php?check=form&original=36500&grossprice=110000&improve=0&sellingexp=7&depreciated=0&staterate=6&payment=&payment=&payment=&payment=&payment=&payment=
I figure that his gain will be about $15,434 depending which state he’s in, maybe some less for capital improvement… talk to an accountant…
I think he’s not interested in doing a starker. He wants the money now. He is 56, wife is 59. They would use the proceeds to pay off their second and some of their first and live very comfortably.
Nate-WI
15K is not that bad of gain tax to pay at the end of the day.
Again too, you might be able to get aggressive with the capital improvements, and knock that down a bit… I don’t even know how much it is worth pushing…
.