real estate gain tax on land?

[ggelitetrader000]

I will probably get answer no however I will ask anyways and also some complicated scenario.

I am thinking to buy a land instead of home. But if land gains value over years will gain be taxable? I am assuming yes because it is not really a "primary dwelling unit" not even habitable place so 250k/500k RE gain tax break likely will not apply I presume.

But in case if I build something on that land few years later and started living there, and then sold later, how will gain be calculated?
Because even without market appreciation, the gain can still be made by simply building on top of land and then there could be another component of gain of actual market appreciation which can be exempted from tax.

To make it easier this tax complication, I believe this is possible scenario.
1. Buy land
2. keep few years.
3. Build the house
4. here is the key event. Have it appreciated by professional to determine FMV at the time it just finished building. This is a "cost basis". Anything prior that gain of land from 1. to 4. is not exempt including gain from cosntructing the house.
5. After years of living in, i decide to sell.
6. determine the tax-exempt gain from sale price at 5. by subtracting FMV at the time of 4.

What do you think?

 

[SunTrader]

Real estate is always about .... location, location, location.

Which also determines taxxxxxxxxes.

Buy land, build, live in, sell house ... wheretf at? Country and even state effects outcome.

Jezzus, details matter unless you are just looking for any old dumbazz answer.

 

[xandman]

$300 Revenue from sale of property (IRS doesn't care about FMV)
less $100 Land expense
less $50 Building expense
_____________________
$150 profit/gain on the property


That's not tax law. That's just accounting. Why do you think the calculation of a gain would be different for raw land, a structure or in combination much less confuse it with FMV at any particular time?

 

[AR15]

If You’re not going to use the land look at private islands

You don’t have to build on them and they gain value faster than regular land

 

[Scataphagos]

I will probably get answer no however I will ask anyways and also some complicated scenario.

I am thinking to buy a land instead of home. But if land gains value over years will gain be taxable? I am assuming yes because it is not really a "primary dwelling unit" not even habitable place so 250k/500k RE gain tax break likely will not apply I presume.

But in case if I build something on that land few years later and started living there, and then sold later, how will gain be calculated?
Because even without market appreciation, the gain can still be made by simply building on top of land and then there could be another component of gain of actual market appreciation which can be exempted from tax.

To make it easier this tax complication, I believe this is possible scenario.
1. Buy land
2. keep few years.
3. Build the house
4. here is the key event. Have it appreciated by professional to determine FMV at the time it just finished building. This is a "cost basis". Anything prior that gain of land from 1. to 4. is not exempt including gain from cosntructing the house.
5. After years of living in, i decide to sell.
6. determine the tax-exempt gain from sale price at 5. by subtracting FMV at the time of 4.

What do you think?

My thinking...

Your cost basis is the cost of the land plus the cost of improvements. It won't matter that you purchased the land years before building upon it.

If you sell at a profit and if you've lived in the house for your primary residence in at least 2 of the prior 5 years, you'll get the capital gains exclusion.. $250k or $500k.

 

[Girija]

I will probably get answer no however I will ask anyways and also some complicated scenario.

I am thinking to buy a land instead of home. But if land gains value over years will gain be taxable? I am assuming yes because it is not really a "primary dwelling unit" not even habitable place so 250k/500k RE gain tax break likely will not apply I presume.

But in case if I build something on that land few years later and started living there, and then sold later, how will gain be calculated?
Because even without market appreciation, the gain can still be made by simply building on top of land and then there could be another component of gain of actual market appreciation which can be exempted from tax.

To make it easier this tax complication, I believe this is possible scenario.
1. Buy land
2. keep few years.
3. Build the house
4. here is the key event. Have it appreciated by professional to determine FMV at the time it just finished building. This is a "cost basis". Anything prior that gain of land from 1. to 4. is not exempt including gain from cosntructing the house.
5. After years of living in, i decide to sell.
6. determine the tax-exempt gain from sale price at 5. by subtracting FMV at the time of 4.

What do you think?

Talk to a cpa. Just like the other tax question, this is a little complex.
Land is not a dwelling unit unless you can somehow prove that you lived in the land. If the land is adjacent to primary dwelling then it can be exempt.
Normally any interest you paid to finance the property is tax deductible. But if you decide to build a home later, that is a conflict against prior deductions. I don't know what the solution is a cpa may need to evaluate. There is a 24 month construction period line item which will further complicate.
Why not ask a cpa.

 

[xandman]

My thinking...

Your cost basis is the cost of the land plus the cost of improvements. It won't matter that you purchased the land years before building upon it.

If you sell at a profit and if you've lived in the house for your primary residence in at least 2 of the prior 5 years, you'll get the capital gains exclusion.. $250k or $500k.

Aha. That's what he means by "gain tax break". Right on, Scat.

OP, Read IRS Publication 523 page 8 for other details.

 

[oxhimang]

When you are talking about investing in real estate, don’t forget to consider its location, that’s what your taxes will depend upon. Not to forget, different countries and states have different taxation systems. So, consider talking to your CPA.

 

[Arnie]

If you buy the land and don't build, then sell, it's just like any other investment, taxed at Cap gains rate, either short term or long term. Build a house and live in it 24 months over a 5 year period (doesn't have to be 2 years in a row) and you now can claim the exemption ($250k single, $500k married). Your cost basis would be the cost of the land, and the cost to build all of the improvements (dwelling, garage, outbuildings etc...).
The time line doesn't matter.

https://www.land.com/selling/what-you-need-to-know-about-taxes-when-selling-your-land/

 

[vanzandt]

I will probably get answer no however I will ask anyways and also some complicated scenario.

I am thinking to buy a land instead of home. But if land gains value over years will gain be taxable? I am assuming yes because it is not really a "primary dwelling unit" not even habitable place so 250k/500k RE gain tax break likely will not apply I presume.

But in case if I build something on that land few years later and started living there, and then sold later, how will gain be calculated?
Because even without market appreciation, the gain can still be made by simply building on top of land and then there could be another component of gain of actual market appreciation which can be exempted from tax.

To make it easier this tax complication, I believe this is possible scenario.
1. Buy land
2. keep few years.
3. Build the house
4. here is the key event. Have it appreciated by professional to determine FMV at the time it just finished building. This is a "cost basis". Anything prior that gain of land from 1. to 4. is not exempt including gain from cosntructing the house.
5. After years of living in, i decide to sell.
6. determine the tax-exempt gain from sale price at 5. by subtracting FMV at the time of 4.

What do you think?

https://www.timbertax.org/getstarted/christmastrees/