Vacant land

[dodgeguy]

We purchased land in 2004 for $33000 and was going to build. We found out that we couldn't put a big enough shop on it so we just kept it and sold it for $62000 in December.  We finally found a big enough piece of land and purchase it for the price of $65000. Do we need to submit this and what paper work do we need. 

[VictoriaD75]

Assuming the land was a personal asset, you need to report the sale of the land, as it will be considered taxable capital gains. Under the Federal menu on TurboTax Online, click Wages & Income. Expand the menu for Investment Income. Click Start/Revisit next to Stocks, Mutual Funds, Bonds, Other. Either Add more sales or begin answering the questions on the screens provided.

In Tell us more about this sale, you can enter Land or the address. Click Continue. Land is one of the options in the What type of investment did you sell? dropdown menu. From there, continue entering information about the land sale. Unless the purchase of the new land was a business asset, it does not need to be recorded until the year of sale.

The gain on the sale of the land will be reported and taxed as capital gains on Form 8949 and Schedule D.

[MG1968]

Hi,

Same situation here. i bought land to build on 2008 for $79000 ,  we changed our mind and sold it in 2020 for $110000 . had the land for more than 10 years, each year i paid property tax and HOA for around $2500 . this means i am even after i sold my land. can i add the properties taxes and HOA to the total cost of the land  ?

 Thanks,

[DaveF1006]

Please review this Turbo Tax link, as it relates to HOA fees.  From what i am to interpret, the HOA fees that were paid at the time of the purchase.can be added to the basis but not for the ten years you owned the property. You can enter these as other investment expenses, which are itemized expenses if you are able to itemize. 

Also property taxes paid during those ten years on your land could have been claimed as investment expenses as well..  You would not be able to claim those expenses for the entire ten years unless you amended your last ten years of tax returns. To claim for this year though, go to federal>deductions and credits>all tax breaks>Other Deductions and Credits>show more>Other Deductible Expenses>start>scroll through the question until it asks Did you have any of these less common expenses? here you would enter your investment expenses, which would include your HOA fees or property tax for this year.

Keep in mind, there is no authority that suggests that you add property taxes to the basis of your property. 

[JDM3]

I purchased a vacant half acre lot 26 years ago for 2,500 and just sold it last year for $10,000.  During that time, I had to pay for a survey and attorney for a law suit to maintain a legal right of way which cost $4,000.  I also paid $1,300 in property taxes during the time I owned it.  My question is are any of these things deductible in my capital gains tax?  All together, I have $7,800 into the property and am hoping some of the expenses are deductible.

[JDM3]

Hi Dave,

I'm a new member and not familiar with protocol of replies but wondered if you have time if you could read my post that falls under this post (Concerning the sale of vacant land).  Thanks!

[VictoriaD75]

The attorney fees related to the right-of-way lawsuit are not deductible. They are separate from the sale. The survey is deductible. The property taxes are deductible as itemized deductions and cannot be included as selling expenses.

Sales expenses include most items that would not be separately deductible on your taxes or loan fees.

Sales expenses include:

 - commissions

 - appraisal fees

 - broker's fees

 - legal fees

 - advertising fees

 - home inspection reports

 - title insurance

 - transfer taxes or fees

 - geological surveys

 - loan charges (points) or other fees paid on the buyer's behalf

Sales expenses do not include:

 - mortgage payoffs or interest

 - home equity loan payoffs

 - rent-back costs

 - payoff to creditors

 - property taxes

 - home owner association fees

[JDM3]

Thanks very much Victoria,

Can you tell me where you would list the survey expenses and the property taxes on the TurboTax form?  Where do you list the itemized deductions?  I appreciate your help.

JDM3

[Hal_Al]

@VictoriaD75 's reply answers @JDM3 's question.

But, for other's reading this, the answer to all tax questions is: "it depends".

If the property was classified as investment property, as opposed to personal use property, prior to 2018, investment expenses were deductible, in the year occurred, as an itemized deduction, subject to the 2% of AGI threshold. That deduction is no longer allowed. 

Alternatively, then and now,  taxpayers can elect to capitalize (add it to your cost basis)  the carrying costs of unimproved and nonproductive real property, real property under development or construction and personal property before its installation or use (Regs. Sec. 1.266-1(b)(1)).  The election is made with the tax return by its due date, including extension, by attaching a statement. You cannot wait until you sell the property, but must make that election each year. Attach the statement to the return and write “Filed pursuant to section 301.9100-2” on the statement. You may add the carrying costs, incurred in the year of sale, to your cost basis. 

Mortgage interest is only deductible to the extent of other investment income and not subject to the 2% of AGI rule,  but can be capitalized.  You cannot amend prior year returns to claim capitalization.

[Hal_Al]

I think @VictoriaD75 's answer assumed the survey cost was part of the acquisition cost, so it would be added to your cost basis.

However, if the survey cost was part of the "maintain the right of way" problem, then it is not deductible. 

Only the current year property tax is deductible.  If you usually use the standard deduction, there's no need to enter it.  It's not enough to make itemizing better than the standard deduction. 

[Tronathan]

I see conflicting answers for this. @DaveF1006 says you would need to amend your previous ten tax returns (although How to amend (change or correct) a return you've already filed (intuit.com) says you can only go back three years) while @Hal_Al says you cannot amend to claim capitalization. Anyone know which is correct? I am in a similar situation with vacant land and I have just seen this option after filing this year. Bummed that Turbo Tax didn't prompt me after entering in my property tax total. (Used home and business desktop edition.)

[Anonymous_]

@Tronathan 

You need to provide more details. Your post was tacked on to a very old thread.

Regardless, with respect to "going back three years", that is the maximum length for which you can file and receive a refund. Of course, you can file returns as far back as is necessary, but you will not receive a refund (even if one is due) pas that three-year time period.

Also, as has been mentioned, miscellaneous investment expenses are no longer deductible and, as a result, cannot be added to the basis of the property.

[Tronathan]

@Anonymous_ 

Thank you for your message. Sorry for not being clear and for the late reply. Basically, I have raw land and wanted to know if I can amend previous year's tax returns to include the statement that I would like to have the property taxes added to the cost basis of the land. If so, how far back can I go? Thank you

[TomD8]

@Tronathan --

I recommend you read this web article which may help answer your question:

https://www.taxaudit.com/tax-audit-blog/can-i-deduct-all-real-estate-taxes-on-a-piece-of-land-sold

[Anonymous_]

---

@Tronathan wrote:

@Anonymous_ 

....I have raw land and wanted to know if I can amend previous year's tax returns to include the statement that I would like to have the property taxes added to the cost basis of the land. If so, how far back can I go?

---

The Regulation that permits a taxpayer to elect capitalization of certain expenses is at the link below.

https://www.law.cornell.edu/cfr/text/26/1.266-1

As you have most likely already read, there is a requirement that the election be made by filing a statement with the original return for the year for which the election is made.

See https://www.thetaxadviser.com/issues/2020/jun/elective-capitalization-tcja-planning.html