Land Sale Tax Question

Never sell land

quote:

---

Will I get hit with a large tax bill when I file taxes or is there a way to spread the money from the sale over several years?

---

it will be part of your 2016 tax return - most likely get hit with taxes due - schedule D will likely be your enemy. Is the land adjacent to or close to your primary residence?

quote:

---

Am I supposed to self report this when I file taxes

---

yep

Like dabigfella said... you will owe cap gains tax on the appreciation between the day the dead person died, and the day you sell it. Capital gains rates are generally 15% but are 20% at high AGI levels. You can deduct any costs of sale such as commissions and closing costs paid in determining the gain.

Depending on the amount of the gain and your other income, you may also owe 3.8 percent net investment income tax on the gain amount.

quote:

---

Will I get hit with a large tax bill when I file taxes or is there a way to spread the money from the sale over several years?

---

If you accept an installment note on the sale, and get the money over time, you can spread the tax hit out int he same ratio that you receive the cash.

Another possibility is a 1031 exchange in which you acquire a replacement real property with the proceeds from this sale. That defers the gain (and thus the tax) on the sale. There are some rather complex and inflexible rules on how these work, so if you don't want to cash out and you want to stay invested in real property, talk to a company that does this type of work. You need to hire a qualified intermediary.

quote:

---

Stepped up basis allows some serious wealth transfers

---

That's true, but unfortunately someone has to die.

I'm not sure if it's appraised value at the time or market value at the time the reason I say that is there is many times a huge difference with land. For instance I have a 82,000 sq ft commercial parcel of undeveloped land here in houston where tax value is like 30% of its real value. The county assessors are usually way off on land valuations.

On the otherhand as someone else mentioned a 1031 exchange you would pay 0 in taxes but you would have 45 days after the sale to identify another property over the value of the current one you're selling and then you have a couple months to buy it.

If you want to cash out in cash, then you will pay taxes and your math is about right give or take.