Capital Gains tax on sale of vacant land

[poorintexas]

What is the name of your state?What is the name of your state? Texas

I am purchasing a piece of vacant land that is very underpriced. It consist of 2 residential lots. I am thinking of buying both lots, but selling one shortly afterward for the equivelant of the entire purchase price, thereby getting free land. Can anyone help me with the capital gains tax implications of my plans? There is a wealth of info on the IRS website, but it takes a PHD to decifer it all.

Thanks.

 

[John Se]

very underpriced?

One would have to ask themselves why? The difference is long term vs short term capital gains. LT over one year ownership) gains are taxed at 15% and short term are taxed at normal yearly income whatever tax bracket youfall in. So why would someone sell land below value??, would you? would anyone else you know?
I would suspect you dont know everything there is to know? could be soning issues, environmental/pollution/defect on the title.

 

[poorintexas]

I have checked out all areas: clear title (the land was a foreclosure and the bank just wants to get the money back); it is a neighborhood in transition and not all of the values are evened out yet. i called the city and it is zoned residential for building my house; no back taxes owed either per the county. So what you are saying is that i would have to pay capital gains on the sale of vacant land at my current tax rate (bracket) if i sold right away? What if the proceeds are reinvested into building a home on the property immediately?

 

[PghREA]

I have checked out all areas: clear title (the land was a foreclosure and the bank just wants to get the money back); it is a neighborhood in transition and not all of the values are evened out yet. i called the city and it is zoned residential for building my house; no back taxes owed either per the county. So what you are saying is that i would have to pay capital gains on the sale of vacant land at my current tax rate (bracket) if i sold right away? What if the proceeds are reinvested into building a home on the property immediately?

The IRS website IS a wealth of information and even if you only skimmed the page on capital gains exclusion you would already have your answer. In order to exclude capital gains from the SALE OF YOUR HOME, it must be your principal residence and you must have lived in the residence, two out of the past five years........ Vacant land does not count.