In January my wife and I purchased 130 acres of land, for 480,000$. we are going to sell two 10 acre building lots, probably for somewhere between 100-150,000 each. we will keep the other 110 acres. 2 acres we will subdivide out for ourselves to build a house on, and the rest will be rolled into a Christmas tree business. on the acreage that we sell, will we be hit with capital gains since we're still going to be approximately 200,000 in the negative?
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
2y
You are not $200k negative unless you give those buyers all the land. You paid $480k for 130 acres or less than $4k per acre. Unless you can prove to the irs that the acres you sold were better than average. Your cost basis per sale will be 10 x $3,690/acre cost or $37k. That sounds like capital gains tax on $63k-$113k depending on sales price and closing costs.
Imagine these were condos. And you sold off 65 condos for $425k. Do you think you could tell the IRS you lost $5k on the deal, even though you have 65 condos left?
Quote from @Bill B.: thanks for the clarification, the parcels being sold are "better than average" the parcels being sold are on a private lane, with mountain views, have natural gas, electric, fiber internet, and cell phone service available. they are perc tested and septic approved lots. they are without a doubt " better than average" how do your provide a cost basis for the IRS on such a lot? comps?
You are not $200k negative unless you give those buyers all the land. You paid $480k for 130 acres or less than $4k per acre. Unless you can prove to the irs that the acres you sold were better than average. Your cost basis per sale will be 10 x $3,690/acre cost or $37k. That sounds like capital gains tax on $63k-$113k depending on sales price and closing costs.
Imagine these were condos. And you sold off 65 condos for $425k. Do you think you could tell the IRS you lost $5k on the deal, even though you have 65 condos left?
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
2y
You want a professional to do that for you. Certainly your guess won’t stand up in tax court. At least get a BPO, better yet an appraisal before they are sold of what portion those 2 lots are of the total value.
You might argue the 10 acres are worth twice as much as the other acres. The irs might argue that the 1 acre build site is worth twice as much, the other 9 are just standard value. But you want to know pre-sale. If just the 110 acres were put up for sale what would they sell for? That might work as a defense also.
Parting thought. The county may assign values to each lot after they are separated and could and maybe should use the percent of the total value assigned to those lots. It would be hard for the government to argue with the value e government put on them.
Another thought, since we are using this land to grow Christmas trees. Could we figure out what our tax hit would be from the capital gains of selling a lot, and offset it by purchasing something big we'll need for the business, like a tractor and depreciate the total value in the first year?