Land Sale

[candsparsons]

How do I list land that was originally inherited in 1998 and sold in 2021?  What information must I have when filing? What IRS forms must be completed?

Timber was cut a few years later and reported on my income taxes.

A company was paid to plant trees in 2001.

A company was paid to have the trees thinned in 2009. 

I also paid to have the timber appraised. 

A fire lane was cut also.

Can any of these expenses be used? 

This land was put in a land-use or present-use evaluation program to lower my property taxes.  Property taxes have been paid each year.

Thank you.

[DaveF1006]

Yes, although land is not depreciable, improvements you make to the land to make it usable can be added to the basis of the Fair market Value of the land when you purchased it in 1998. To report, you need to report it as an investment sale.  

1. Income and expenses once you open your Turbo Tax program.
2. Investment Income.
3. Did you sell any of these investments in 2021? Say yes
4. Stocks, Cryptocurrency, Mutual Funds, Other (1099-B)
5. Choose the Other option on what type of investment was sold
6. Type in the name of the company when TurboTax requests a name
7. Choose Other for the type of investment sold and answer the questions
8. Next screen says Now we’ll walk you through entering your sale details. Here in the first drop-down, select land(other investment purposes)
9. Next drop down you will indicate you inherited the land.
10. Enter the Proceeds you received equal to the gain you want to report
11. Next you will enter the FMV of the land when you inherited it. Here you will add to that total all the improvements as cost basis., except for the Fire Lane.
12. I have one question about the fire lane.  Was this an easement that was granted  by the local authorities or did you pay to have this lane put in ? Please respond to this question so I can give you the correct tax advice.
13. The reason I asked if the local officials granted this easement and you paid no out of pocket for this, you will need to substract the value of this easement from the basis in step 11 above. This is outlined in IRS Rev Rule 68-291 found in this document. It states Revenue Ruling 68-291, 1968-1 C.B. 351, clarifying Revenue Ruling 59-121, 1959-1 C.B. 212, provides generally that the consideration received for the granting of a perpetual easement constitutes the proceeds from the sale of an interest in real property and should be applied as a reduction of the cost or other basis of the portion of the land subject to the easement."

[candsparsons]

Item 12.  The fire lane that was cut was cut by some hunters that wanted to use the land for deer hunting.  They agreed to cut a fire lane and I agreed that I would not charge them to hunt.

Hope this helps

Thank you.

[candsparsons]

How do I determine the fair market value of land inherited in 1998?

[ThomasM125 · Accepted solution]

The original basis of the land would be its fair market value when you took possession of it. You may be able to determine this by doing some research online at the property appraiser's office.

All of the other expenses accept the property tax can be added to the basis of the land and deducted from the sale proceeds to determine your capital gain. The property tax was deductible each year on your personal tax return so you can't add it to your basis, unless you had made an election to capitalize all of your holding costs.

Also, if you had deducted any costs of the Timber when you sold it, you would need subtract that from your basis.

You report the sale as an investment sale in TurboTax, as follows:

While in the Federal section of TurboTax:

  1. Income and Expenses

  2. Investment Income

  3. Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)

Choose the category of investment you want to enter and follow the instructions to enter your investment sale.