Solved: I bought 146 acres for $105K in 1998, divided the land in (4) 35 acre parcels. Currently, one of 35's is under contract for $117K. Will I have to pay capital gains?
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CO-single-mom
New Member

I bought 146 acres for $105K in 1998, divided the land in (4) 35 acre parcels. Currently, one of 35's is under contract for $117K. Will I have to pay capital gains?

I bought 146 acres for $105,000 in 1998.  In CO where I live, 35 acres or more, can easily legally be divided.  I mapped the land in four 35 acre parcels. I was married then built a house on one of the parcels.  In 2015, I got divorced and sold the house (because i couldn't keep it up by myself) along with one of the 35's acres (so the new owners bought 70+ acres). The funds from the sale of the house/land were split between us, and I put mine into purchasing a condo for my 2 daughters and me. 

Through the divorce I got the remaining 70+ acres. I now have one of 35's under contract for $117K.  I am single head of household for me & my daughters, and i make under $50K annually. If it sells, will I have to pay capital gains?  

If the second parcel sells for likely about $115K - $120K (it is also listed and there has been interest), will I have to pay capital gains on that?  Just trying to figure out tax implications before the end of the year.  

Your help and advice is much appreciated.  Thank you!!!  

1 Best answer

Accepted Solutions
TomYoung
Level 13

I bought 146 acres for $105K in 1998, divided the land in (4) 35 acre parcels. Currently, one of 35's is under contract for $117K. Will I have to pay capital gains?

When you subdivided the original 146 acres you  should have allocated that initial $105K, (plus costs associated with the subdividing process), among the 4 new properties.  Simple math suggests a per property cost of about $26 - $27K, but you're not limited to that "simple math" process.  If one or more of the parcels is more desirable than the others - better topography for building, a view or stream, road access, utilities to lot line, etc. - then the allocation can be different for each lot.

So, a question for you: did you allocate that basis among the new parcels and include that in the basis of what you sold?  If not an amendment of that 2015 income tax return is in order.

Assuming the "simple math" allocation took place each of the remaining parcels has a basis of that $26K - $27K so the sale of the one parcel under contract will result in a long term gain of something like ($117 x 93%)* - $26.5 = $82.3K. 

Assuming an AGI before gain of $50K, assuming both children are dependents, assuming you take the standard deduction, assuming there are no other factors to consider like HSA deductions, available tax credits, etc., (are you starting to get the drift that the devil is in the details to what you might consider a simple question?), then you'll have taxable income of about $110.7K and that suggests LTCG tax of around $11K, a "blended" rate of 13%-14%.

If you sell the 2nd parcel too in 2017 that will most likely be taxed at 15%.

Tom Young


*SWAG of net to you after fees

View solution in original post

2 Replies
TomYoung
Level 13

I bought 146 acres for $105K in 1998, divided the land in (4) 35 acre parcels. Currently, one of 35's is under contract for $117K. Will I have to pay capital gains?

When you subdivided the original 146 acres you  should have allocated that initial $105K, (plus costs associated with the subdividing process), among the 4 new properties.  Simple math suggests a per property cost of about $26 - $27K, but you're not limited to that "simple math" process.  If one or more of the parcels is more desirable than the others - better topography for building, a view or stream, road access, utilities to lot line, etc. - then the allocation can be different for each lot.

So, a question for you: did you allocate that basis among the new parcels and include that in the basis of what you sold?  If not an amendment of that 2015 income tax return is in order.

Assuming the "simple math" allocation took place each of the remaining parcels has a basis of that $26K - $27K so the sale of the one parcel under contract will result in a long term gain of something like ($117 x 93%)* - $26.5 = $82.3K. 

Assuming an AGI before gain of $50K, assuming both children are dependents, assuming you take the standard deduction, assuming there are no other factors to consider like HSA deductions, available tax credits, etc., (are you starting to get the drift that the devil is in the details to what you might consider a simple question?), then you'll have taxable income of about $110.7K and that suggests LTCG tax of around $11K, a "blended" rate of 13%-14%.

If you sell the 2nd parcel too in 2017 that will most likely be taxed at 15%.

Tom Young


*SWAG of net to you after fees

View solution in original post

Hal_Al
Level 15

I bought 146 acres for $105K in 1998, divided the land in (4) 35 acre parcels. Currently, one of 35's is under contract for $117K. Will I have to pay capital gains?

Yes. $105,000 original cost basis divided by 4 parcels = $26,250 cost basis for each parcel.  If you sell a parcel for $117,000, you will have a capital gain of about $90,000. With other income of $50,000; about $29,000 of the capital gain will not be taxed (taxed at 0%) and the other $61,000 will be tax at 15%. If you sell the 2nd lot in the same year, the whole $90K, on the 2nd lot, will be taxed at 15%.

You can use this tool to do your own calculation. <a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tools/calculators/taxcaster/?s=1">https://turbotax.intuit.com/tax-to...>
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