Land Purchase and Sale Cost Basis Question

[Denis]

I bought vacant land in 2014 and sold it in 2018.  After reading IRS pub 551, I'm still not confident how to document purchase price and sales price.  The most understandable explanation  that I found is here. https://budgeting.thenest.com/tax-basis-selling-expenses-land-30130.html  Can someone confirm that the article explains this properly?  If so, I will need to amend my 2018 filing to in order to subtract the settlement fees from the sale price in order to lower my tax bill. In other words, I may have paid  significantly more taxes than necessary.   Any help appreciated. Thanks.

[Denis]

Anyone?

[ZTaxPro · Accepted solution]

The basic calculation for the gain is Sales Proceeds less Basis and Selling Expenses. Sales Proceeds is the sales prices. Basis is the purchase price plus any improvements less any depreciation. And selling expenses is any expense for the sale of the property. The link does not work but that should be it.

[Denis]

Appreciate your response.  Sorry about the link. Worked at one point in time.

  I failed to include the sales expenses (realtor fees and settlement). Big oversight on my part. Will be amending and recapturing the money I gave to Uncle Sam by mistake.

[9062980098]

Can you include in basis property taxes paid on vacant land while you held it?

[DeanM15]

It depends. You can if you have not deducted the property tax on Schedule A, and you have made a Section 266 election for each year of property taxes and other carrying costs. 

You need to include a statement with each years taxes. The statement will look something like this:

For tax year XXXX, taxpayer hereby elects under Code Section 266 and IRS Regulations 1.266-1 to capitalize, rather than deduct, property taxes, mortgage interest, insurance expenses, and other miscellaneous carrying costs on the XXXX Any Street vacant lot.

You can read more here and here.

@9062980098