Are real estate taxes on vacant land deductible, and if I sell the land for a loss, is it a capital loss?

Question

I purchased vacant land 2 years ago and plan to sell it within the next few months. I haven't used it for any purpose the last 2 years, so I'm assuming it's considered investment property. Originally I had planned to build on the land, but now that I'm moving to a different city I need to sell the land.

I have 2 questions:

1. Are real estate taxes deductible on investment property? If so, are they reported in the same place as the real estate taxes I report for my primary residence?

2. I'll probably break even on the property or even sell at a loss. Would this be considered a capital loss (if I consider it to be investment property)?

Thank you!

Answer 1

1. Real property taxes are always reported on Schedule A, in the same section that you report your property taxes on your principal residence. The only time that it would not be reported on Schedule A is if the property was held as rental property. In that situation, it would be reported on Schedule E along with your rental income and expenses.

2. If the property was held as an investment, a loss on the sale would be considered a capital loss. Whether it is short term or long term would be dependent on the holding period. Capital losses can only be used to offset capital gains, plus an extra $3,000 of loss per year (you can only deduct a net capital loss of $3,000 per year). Any excess loss would be carried over to future years until it is used up.

Answer 2

1. Yes, subject to the 2% of AGI floor. It would be on the schedule E for the real estate activity.
2. It would be a capital loss unless the property was held in a business, for instance for rent, in which case it would be ordinary loss/capital gain under section 1231 of the Internal Revenue Code.