Question on selling land

[retired2015b2d]

We bought some land to retire to and now a neighbor is trying to buy it from us at a good profit. We would only sell if we could buy something comparable. Question is would we owe short term profit gains on it if we were to immediately buy another property? This is a second location not were we live now. We would double our money but it will take all of that to buy something similar.

Thank you....

 

[DrRoy]

From what I have read, if you bought the property for "personal use" then you would not owe taxes. If you bought it as an investment then you would. I wonder though, if you would just have to sink it all back into another property, what is the point?

 

[pb4uski]

From what I have read, if you bought the property for "personal use" then you would not owe taxes. ....

NO!!!

It doesn't matter the purpose.... if you own property and sell it you will need to report it and owe tax on any gain. The sale proceeds may also be reported to the IRS so they can make sure that you report the sale.

If owned for less than a year then it will be ordinary income (short-term capital gain) but if owned for a year or more it would be a long-term capital gain.

If the OP is sure that it would cost them at least as much as what they are selling the property for to acquire a similar property then I don't see any benefit for the OP.

 

[Texas Proud]

NO!!!

It doesn't matter the purpose.... if you own property and sell it you will need to report it and owe tax on any gain. The sale proceeds may also be reported to the IRS so they can make sure that you report the sale.

Yes.... it is a taxable transaction...

But to OP... the gain being LT or ST is based on how long you have owned it, not how quickly you buy something else...

 

[Senator]

You can avoid any capital gains by doing a 1031 exchange. It sounds like this may be a perfect transaction for it, depending on the amount of your gains.

With land, you are mostly on the honor system of reporting any gains. No one will issue a 1099.

 

[OldShooter]

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

IOW, a 1031 exchange does not apply to property held for personal use such as the OP describes. I would suggest contacting a tax-oriented CPA to determine the risk and the probability of getting away with the exchange anyway.

I have done these a couple of times and it is a PITA for the seller of the land the OP is buying. It will also result in extra legal and accounting fees for both the OP and the person who sells to the OP. That is not to say don't do it, but it is a consideration.

If the OP has another piece of land in mind, I would put the burden on the neighbor who wants to buy the OP's land. "If you can get me that replacement land at a net cost to me, incuding income taxes, of zero then I will do the deal."

 

[Texas Proud]

Just a point on the exchange... and not sure if you can do it anymore.... but back in 2000 you could put the money your received from the sale of the land into a trust and buy the replacement at a later date... IIRC there were some that went two years before purchasing....

Maybe someone knows the rules and if it is still available... a small cost to have the funds deposited at a bank who runs the trust (think escrow)....

 

[haha]

I recently sold some rural land with a 1300 sq foot house on it to someone who was doing a 1031 out of another property. Easiest thing I ever did, Smooth, fast and no nit picking.

Ha

 

[Senator]

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

IOW, a 1031 exchange does not apply to property held for personal use such as the OP describes. I would suggest contacting a tax-oriented CPA to determine the risk and the probability of getting away with the exchange anyway.

The OPs property, by definition, is an investment, unless it was used for personal use greater than 14 days (i.e. recreation). Simply holding land is not personal use no matter what the future intention is.

A 1031 exchange to a different parcel, assuming the new parcel will not be used personally for two years, is a valid 1031 exchange.

I am going to sell two rentals and buy a single vacation rental that I will use myself for two weeks a year, and will also use it while I do any repairs or rehabs. During prime season, it will be rented by the week.

After two years, I can use the vacation property as a personal residence, as much as I want, and rent it for 14 days a year, tax free. The 14 days should pay the real estate taxes at least (which are also deductible...)

 

[euro]

I think the Senator is right on that, but as he says, the exchange WILL prevent you from using the land for 2 years. I assume there is some specific point of you wanting to own this land (i.e. plans to build your dream home or something), so you'll need to take that into account.