All Forum Posts by: Matt Streeter

We purchased 133.7 acres January 20th of 2024, we then proceeded to subdivide 4 building lots, ( two 10 acre lots,  and two 2 acre lots)  which included costs associated with septic testing,  survey & subdivision, and property maintenence required to market the building lots. We are currently under contract on one of the lots. The land itself ran us about 3600/ acre, (480,000) and approximately another 20,000 in closing costs. We have approximately 10,000 in septic testing and subdivision, and another approximately 10,000 in a tractor to maintain the building lots.  Our big cost is the mortgage interest, which is 8.3% on approximately $360,000, last year our mortgage interest was about $25,000. We are set to close on a 10 acre building lot January 31st for 125,000. That will put us into the long term capital gains category on the sale.  with the information provided can someone please give me our cost basis so I can figure total capital gains? land sale is in Northern PA, but we are currently NY residents. 

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?

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?

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? 

Quote from @Dave Foster:

@Matt Streeter, You can certainly 1031 those duplexes and purchase the land while deferring tax on the gain.  

You can sell any part of that land any time you want.  You will simply pay the tax on the part of the gain that was allocated to the parcel you sell plus any new gain.

You can subdivide and build on that property immediately.  For a primary residence you would want to do one of two things.

Either - Build and use the new build for investment for a year or two.  Or don't build for two years while using the land for it's investment purpose.  But if the land was more expensive than the sale of the two duplexes you may be able to make a case to build and move in immediately.

Thank you for the insight! the property itself is 150 acres for around 450,000$. if we were able to 1031 the rental properties if we sold at the absolute maximum they're worth,  that would be about 250,000 each. after paying off the loan balances that would leave us with around 300,000 to roll into the acreage.  

We currently own two nice duplexes,  they have been totally redone and are set to make money. we never intended to sell them,  so have accumulated a lot of write offs against them since we started in 2019. this year was actually our first profitable year. A rare opportunity has presented itself, to buy extremely valuable land at a reasonable price per acre.  the land is currently wooded (60%) and fenced in farmland (40%) the fenced in farmland currently has beef cows on it. we are cash poor, as all of our equity is tied up in assets or investments such as the rental properties, our single family home,  401k, etc. So to aquire the property we will most likely have to sell our investment properties.  we would like to roll them over into the land,  but a couple questions follow with if that scenario alone qualifies- would we be able to ever 

1) subdivide and sell a lot to help recoup our money

(the price per acre is reasonable because it is such a big lot- if we were to sell off one small couple acre lot we could recoup an extreme amount of money)

2) subdivide and build a primary residence on a portion of the acreage

both instances leave the property's primary uses agricultural, whether it be for raising beef cows,  logging the wooded acreage, leasing tillable acreage to farmers etc.

please point me in the right direction! thank you