Tax On Selling Land: Understand (And Reduce) What You Owe

Aug 30, 2022

You have land. Maybe you bought it yourself, or maybe you found yourself the owner as a result of surprise circumstances. However you acquired it, understanding the tax on selling land is critical if you hope to sell.

Failure to settle your tax bills can create all kinds of problems down the road. If you don’t stay on top of your finances, you could have your land taken from you before you can actually sell it. From tax penalties to liens and foreclosure, the risks of underpaying your taxes are nothing to take lightly.

Keeping your tax burden well-managed makes it easier to plan finances so that you can enjoy life instead of just getting by.

Do you have children? A family? Old medical debt?

Staying on top of your liabilities helps you prioritize responsibilities like these without creating extra financial stress for you and your loved ones.

Our nationwide experience in land sales transactions has given us a great understanding of what taxes to expect when selling land. Below, you’ll find everything needed to understand taxes on land sales. Stick around until the very end for bonus recommendations to help you lower your final tax bill!

What Taxes On Selling Land Apply Nationwide?

Everyone must pay capital gains tax on land sales. Specific rates range from 0% to over 30% depending on your assets, how long you’ve held them, and your income bracket. High-earning landowners also pay Net Investment Income Tax.

Land sales are considered capital gains. Short-term and long-term capital gains are both taxed as part of your annual income, and different tax rates apply depending on how long you’ve owned the land and the total value of your assets.

The IRS has online resources to help you determine whether you owe Net Income Investment Tax. You can find threshold amounts based on tax status here.

No matter where you live, you’ll have to pay federal taxes on land sales. Failure to pay can lead to penalties, costing you more money in the long run. Understanding what you owe spares you the time, stress, and money of dealing with additional fines.

Entering through a gate for a land tour

Are There State-Specific Taxes On Land Sales?

Every state charges property taxes for selling land. Most states calculate specific rates using similar guidelines to federal property taxes.

This resource contains a breakdown of property taxes for every state. Contact your local tax authority to learn more about possible exceptions and changes related to land taxes.

Tax bills can seem like a hassle for landowners, but they fund important local infrastructures like education, management, and maintenance. Showing responsibility by promptly paying state taxes is a great way to give back to your community.

Where Can I Find Exceptions For My State’s Tax Rates On Selling Land?

Check with your local tax assessor’s office for specific exemptions in your state, especially if you’re a veteran or over 65. Many states offer exemptions based on criteria like these.

Check to see if you own land that qualifies for an exemption in your area. This list mentions the states that offer tax exemptions to veterans and people over 65.

Knowing whether or not you qualify for an exemption will help you avoid overpaying in the event that someone makes a mistake during the sales process.

Overview of a countryside property

How Can I Reduce My Taxes On Selling Land?

Aside from checking your exemption status, deferred sales, installment sales, and 1031 exchanges are all excellent ways to reduce your tax burden when selling land.

Deferred Sales

A deferred sale occurs when a landowner delays a sale on purpose in order to take advantage of improved tax rates in the future. This strategy can also give landowners extra time to prepare to make a sale. If they think the market might jump, a deferred sale might allow them to take advantage of higher prices in competitive markets.

Installment Sales

In an installment sale, landowners make a sale where they will receive payments across multiple tax years. Because capital gains are reported per installment, this allows sellers to adjust their gross income to qualify for special tax deductions.

It also gives sellers more control over their tax brackets and can potentially be used to reduce net income investment taxes.

1031 Exchanges

In a 1031 exchange, one piece of land is essentially swapped for another. Because this doesn’t affect the landowners net worth as significantly as an outright sale, it can result in lower property taxes after completion.

It’s important to keep in mind that the IRS limits the properties allowed to perform 1031 exchanges. Use this document from the IRS to check your eligibility.

Ready To Sell? Dow Land Buys Your Land

No one likes paying property taxes, but approaching the situation from an informed perspective can ultimately reduce their impact on your finances.

Knowing exactly what taxes to pay after selling your land and what you can do to reduce them lets you minimize additional fees, maximize profits, and helps you achieve the financial independence you’ve always dreamed of.

If you have a thorough understanding of your tax situation and you’re ready to make a sale, contact Dow Land for a sales quote with no obligation to sell. We can’t wait to buy your land.

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