Capital Gains Tax and selling of raw land

[rchapman1011]

What is the name of your state? Virginia

My husband and I bought 3 parcels of land over 5 years ago. We chose to build a house on the middle lot. We now want to sell all 3 parcels separately, but want to avoid paying capital gains tax. Is there a way we can do this?What is the name of your state?

 

[xylene]

Its EASY!

What is the name of your state? Virginia

My husband and I bought 3 parcels of land over 5 years ago. We chose to build a house on the middle lot. We now want to sell all 3 parcels separately, but want to avoid paying capital gains tax. Is there a way we can do this?What is the name of your state?

Sell the property for a loss. (sale price < purchase price + cost basis)

 

[wdlsguy]

Is there a way we can do this?

A little light reading for you.

I am not a lawyer.

 

[xylene]

That's a good start wdlsguy, and if this were their home they would have more options.

However they are selling LAND.

I am confident that they only way they will avoid paying at least some capital gains taxes, is to have no capital gains. This might be the case... but if so I would be worried about more than the possibility of capital gains.

 

[wdlsguy]

if this were their home they would have more options.

She said they built a house on the middle lot. She didn't say if this was their main home or not. If so, they might be able to sell all three lots at the same time (not separately) and still avoid the capital gains tax (see page 3 of the IRS publication).

 

[xylene]

She said they built a house on the middle lot. She didn't say if this was their main home or not. If so, they might be able to sell all three lots at the same time (not separately) and still avoid the capital gains tax (see page 3 of the IRS publication).

True enough, and they may be able to take the 250,000 exemption on the lot with the house on it (if it is their main home and met the use test), or on the all three lots (only 1 exemption total)

However there is a good case to sell seperately. Failing to maximize profit to avoid capital gains is not economically rational, even though plenty of people fall victim to such fallacious thinking.

 

[pojo2]

3 parcels of land

And likely recorded as such and they want to sell them as such according to the OP.

 

[xylene]

3 parcels of land

And likely recorded as such and they want to sell them as such according to the OP.

That they (OP) wants to sell them as seperate is the relevant concern.

Adjacent parcels sold with the main home can be included under exemption, but not in seperate sales.

 

[TeddySnyder]

Ways to manage capital gain

You want to sell the 3 parcels separately I take it.
Is that because you can't get a buyer for it all at once?
If you sell it all together, you and your wife can exclude up to $500K in capital gains. As to the balance, you will need to pay capital gains tax on it, or do a structured sale for part or all of the proceeds and receive periodic payments. You can defer the start of the payments until you are retired and presumably in a lower tax bracket.

If you can't sell it all at once, divide up the parcels. The same advice as above applies to the parcel your house sits on. As to the other 2, you can do "1031 exchange" where you exchange this property for other investment property through an intermediary. This defers recognition of the gain indefinitely until you sell the last property in the continuum.

Or you can do a structured sale of the other parcels, and convert part or all of your proceeds into periodic payments through a "structured sale." Then you wouldn't pay any tax on any of the gain until you receive a payment, and then only on the proportionate part of the payment which represents gain. Your payments can be 1 or many, monthly , quarterly, annual, whatever. They can start now or later. You can choose to get payments to last your whole lifetime, sort of like a pension from your investments.

 

[pojo2]

ONE MORE TIME

3 parcels of land that is what was purchased. One can not without permission in many locales decide they now want to combine the parcels. There may be a pre step to any of the things suggested in getting the city/county etc. to recognize these as 1 property now unless this was done way back when and now they want to separate out the 3 parcels again.

 

[TeddySnyder]

You're right. I was not trying to comment on those issues-- only the tax.

 

[xylene]

ONE MORE TIME

3 parcels of land that is what was purchased. One can not without permission in many locales decide they now want to combine the parcels. There may be a pre step to any of the things suggested in getting the city/county etc. to recognize these as 1 property now unless this was done way back when and now they want to separate out the 3 parcels again.

How the parcels are recorded in the cadastral files is not the most important matter. The IRS publication makes this clear.

The use test and main home are what matter for getting the exemption from capital gains.

Concerning LAND-

IF thethe undeveloped parcels touch parcel the home is on, and IF the home is their main home and meets the use test, and IF they are sold at the same time to one buyer, then yes exemption to capital gains can be applied to all the property sold.

That said, the OP indicated clearly they want to sell the parcels seperately, meaning capital gains on the two parcels, and maybe an exemption on the developed property if it meets the use and main home tests.

Mr. Snyder suggests some eleaborate ideas to DEFER and minimize tax, and the points are well taken. That said they are not for everyone, and no doubt should not be undertaken without the aid of a proffessional.