My husband and I own a home and a piece of land that we intended to build on, and sell our house.
We have instead decided to sell the vacant land and our current home (lived in for 6yrs) and put a down payment on a house with the land profit money. My question is, will we have to pay a capital gain on our land profit if we are putting it back into the new house? If so how much will we be taxed on our profit?
Is there any way to avoid being taxed on the land profit?
2007-02-27 04:27:46 · 4 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
The gain on the sale of the land is fully taxable. If you owned it longer than 1 year, the gain will be taxed at the lower long-term capital gains rate, normally 15%.
There is no way to avoid the tax. The only way to defer the gain is with a Section 1031 Like Kind Exchange. That's probably not a realistic option, but it's the only one you have.
The old rules that allowed you to defer the gain on the sale of a personal residence were tossed over 10 years ago -- and wouldn't have applied anyway to raw land.
You can exclude up to $500,000 in gain on the sale of your principal residence if you lived in it for 2 of the 5 years immediately prior to the sale if you are married and file a joint return. The raw land is fully taxable as it can't be claimed as a personal residence.
2007-02-27 04:41:25 · answer #1 · answered by Bostonian In MO 7 · 0⤊ 0⤋
If you've owned the property for less then a year it's considered short term capitol gains and it will go on your income for the year, so you'll pay what ever tax bracket that puts you in. If you've owned it for more then a year it's considered long term capitol gains and the profit is taxed at a flat rate of 15%. When you or your tax person calculate your profit make sure you write off any expense associated with buying and selling the property, (you don't have to pay taxes on them) like real estate fees, taxes, loan interest, inspection fees, etc..
2007-02-27 04:49:25 · answer #2 · answered by eric 1 · 1⤊ 0⤋
No way. A like kind exchange under Section 1231 works to defer a gain for exchanging land for a house but it cannot be used for property held for personal use - only for business or investment property.
2007-02-27 06:13:05 · answer #3 · answered by spicertax 5 · 0⤊ 0⤋
You have to claim it. You claim any type of income. And after you buy, you claim this amount on your expenses.
2007-02-27 04:32:22 · answer #4 · answered by ruth4526 7 · 0⤊ 2⤋