taxes on land sale

This assumes the county will not take the land as payment for old home, etc. (They have other assets that cover old age expenses.) Also assumes the hiers are worthy of getting the assets, etc. ;)

Many sticky issues with this, but it is _one_ way for _some_ to deal with capitol gains taxes.

Otherwise, govt will take the price your folks get for the land, subtract what they paid for the land, and take about 15% of that for the capitol gains tax.

As mentioned, there are homesteading deals, and other exceptions, but they generally are minor on farm land.

Just general ideas - see a good CPA to help yourself out!

--->Paul

In this case the couple needs to know their basis in the land, or what they paid for it and the cost of improvements (fence, terraces, buildings) they've made over the years. Items that have been depreciated like a $40,000 machine shed that has been depreciate to -0-, will be taxed at the regular tax rate to the extent of their value at the time of the sale. As long as they have (some) records the tax return shouldn't cost all that much to prepare.

In the case of a purchase, the cost basis is the actual purchase price. Of course the cost basis is adjusted for improvements to the property, less depreciation that's been deducted from taxes.

In the case of inheritance, the property gets a new cost basis equal the value of the property when it was inherited. Of course, that value may be difficult to determine today if the property wasn't appraised then.

Capital gains are taxed at 28 percent, so if the cost basis on your parents' property is $50,000, the gains would be $400,000 resulting in a tax liability of $112,000.

The best way to avoid taxes on the property is for you parents to will it to their heirs. After their death, the heirs will get a new cost basis and can sell the property (if they wish) without paying any capital gains tax.

You need to find out why your parents want to sell this property. And they need the advice of a lawer specializing in estate planning before they put the property on the market.

IRS regulations also allow you to use your valuable gain exclusion to shelter profit from selling vacant land next to your principal residence. You can even sell the parcel with your home and the surrounding vacant land in completely separate transactions.

"However, the land must be sold within two years before or after you sell the parcel containing your house".

Also, the land must be adjacent to that parcel and be used as part of your principal residence.

For example you can sell a one-acre parcel with your home in one transaction and a 29-acre adjacent parcel of vacant land in a separate transaction — and use your gain exclusion to shelter the combined profits from the two sales.

Check out this link if in doubt.

http://www.inman.com/bruss/reports/3344th1x4.htm

Basically, do as suggested and get a local (who knows your states laws) CPA and/or Tax Lawyer cuz what they charge you will gain many times over as far as complex tax avoidance is concerned.

John T, Retired Engineer now a Country Lawyer, but NOT a Tax Lawyer for sureeeee ee

Don

I second the advice of going to see a pro--a Certified Public Accountant (CPA), or someone else who knows how to keep your money safe.

Based on what I've heard, if you sell something like a large chunk of land, you are subject to Capital Gains tax. For the value you are talking about, I think those run as much as 50%. (ouch!)

Now, I think the way most people get around the Capital Gains tax is to take the money and reinvest it in more property. I think there are other games you can play with it to avoid the Capital Gains, like giving one-time gifts to relatives and what not.

Like I said though, consult a pro. The information in this thread is free, and worth what you pay for it.