Real estate transfer tax

[efflandt]

What is the name of your state? WI, but might apply to any state since it involves federal schedule D

I live in IL and am considering selling land in WI to the state (within Lower Wis. River Scenic Riverway) depending upon what happens to property taxes. My land was recently re-assessed from $800 (crop value based on agriculteral zoning) to $22,500 (50% of market value as undeveloped land). I am guessing that this would raise property taxes from under $20 to significantly higher (hundreds?).

I have been looking at IRS site and WI and IL dept. of revenue sites about long term capital gains and whether estimated income tax payments would be necessary if I sell it next year.

WI real estate transfer tax (30 cents/$100) and form PE-500 are due with any deed registration (county forwards a portion to the state). Where is this real estate transfer tax figured in if I end up paying it (adjusted cost basis or by adjusting gross sale price to net price)?

I have heard that who pays transfer tax is often negotiated between buyer and seller, but the seller is ultimately responsible, since PE-500 form and payment must accompany deed registration.

 

[abezon]

Costs of sale are added to basis. The gross proceeds are reported to the IRS, so they can't be adjusted.

As for whether you will need to make estimated payments, talk to a local tax pro & take in your 2005 tax info. S/he will be able to determine you likely tax bill for 2006 & whether you need to pay the taxes ahead of time or can just put the money in a CD until 2007. You might also ask about condemnation awards and whether you want to find replacement property.

 

[efflandt]

Thanks.

There is no condemnation. The state is just buying up property within the boundaries when it becomes available, and in the meantime has some rules about what we can do with it (no commercial timbering, etc.) since they are trying to keep everything natural like when the explorers came up the Wis. River. It is one of the few stretches of river not lined with cottages.

I did research estimated tax payments and would have to make them for WI, since there is a penalty for more than $200 underpayment. WI has somewhat higher tax, but 60% long term gain exclusion. IL taxes 100% of all capital gains at a lower overall rate, so I would still owe some IL tax after credit for WI tax, but less than $500 underpayment limit.

For federal I can just make W-4 adjustments.