I sold a piece of bare land that I owned for 10 years. What factors/variables are used to calculate a gain or loss? And where do I enter it on the 1040 tax form?

[jpbarman]

Not rental property and never sold anything off the land.  It is a lot in a new housing development.  Only made improvements to the land by removing ***** trees and trimming other trees, and hauling in dirt to build up low spots.

[DavidD66]

You will report it as an investment gain.  Your gain (or loss) will be the sales proceeds, adjusted for any selling costs such as commissions, less your adjusted cost basis (what you paid for the property plus and your improvements, such as tree removal and hauling in the dirt. 

You will report that in the same section in which you report stock and other investment sales.  To enter:

• Type "Investment sales" in the search window and click Enter
• Click on "Jump to Investment sales"
• On the page with "Did you sell any investments in 2020?"  Answer Yes
• Answer "Other" to "OK, what type of investments did you sell?" and click Continue
• Enter the name of the person or firm that brokered this sale
• On the page with "Now we’ll walk you through entering your sale details" for "What type of investment you sold" Indicate "Land"
• Indicate "How did you receive this investment?
• Enter the details of the sale, and the interview will walk you through entering the details of the sale

[jpbarman]

Thank you for the quick answer. The tax form has a block for the Proceeds and a block for the Total Amount Paid, so I understand I'll add the cost of improvements to the land, to the block for the Total Amount Paid.

Follow-up question: Do I also get to add to the Total Amount Paid, the total of the property taxes I paid on the land over the many years (and/or Home Owner's Associate fees), since that cost detracts from any true net gain?

[HelenC12]

Yes, there is an IRS provision under §266. The IRS allows taxpayers to capitalize taxes and carrying charges that would otherwise be deducted or wasted. If you have costs associated with your investment property, including interest, property taxes, and other carrying charges, such as insurance and maintenance costs, you can elect to capitalize these expenses.

• However, you cannot elect to capitalize these costs if the property is operating as a business or anything other than investment purposes, such as a parking lot.
• Example: "For tax year _____, taxpayer hereby elects under Code Section 266 and IRS Regulations 1.266-1 to capitalize, rather than deduct, property taxes and HOA fees on ________________ vacant land."

Sources: 

• Tax Deductions for Vacant Land

• Investment Property Tax Planning – What to do with your vacant land?