Land For Sale, Inc., I SELL DIRT NOT PROMISES

What about taxes?

Please note: these are examples and combined tax rates are approximate. You'll need to consult your tax professional for the specifics on your situation.

We're married and selling our farm which has also been our home for at least 2 of the last 5 years? How do we compute the capital gains taxes?

We paid $150,000 for the property.

We invested another $50,000 in out buildings while we owned it.

And we are selling the property for $1,000,000.

What is our capital gains tax?

The BASIS is the $150,000 purchase price + the $50,000 improvements for $200,000.

Sales Price: $1,000,000

Less BASIS: -- 200,000

Capital Gain: $800,000

Because this is your homestead and your are married you can reduce the capital gain by up to $500,000:

Sales Price: $1,000,000

Less BASIS: -- 200,000

Capital Gain: $800,000

Less homestead exclusion: --500,000

Taxable Amount: $300,000

IRS + Minn. cap gain approx tax: 20%

Approximate tax you pay: $60,000

If you are single and this is your homestead then the exclusion is $250,000 and your approximate tax is :

Sales Price: $1,000,000

Less BASIS: -- 200,000

Capital Gain: $800,000

Less Homestead exclusion: --250,000

Taxable amount: $550,000

IRS + Minn. cap gain approx. tax: 20%

Approximate tax you pay: $110,000

Q. Can I take this $500,000 or $250,000 exclusion more than once?
A. Yes. If its your homestead you can take it as often as every two years.

Q. Do I have to buy a more expensive property to get this exclusion?
A. No. You don't have to buy any property to get it?

Q. Do I have to be at least 55 to take the exclusion?
A. No. You can be any age.

What if I'm selling vacant land?

Then the homestead exclusion doesn't apply. Say you paid $300,000 for the land and sold it for $800,000. Then:

Sales Price: $800,000

Less basis: -300,000

Capital Gain: $500,000

IRS + Minn. cap gain approx. tax: 20%

Approximate tax you pay: $100,000

How can I avoid paying the capital gains tax?

One way is to do an IRS Section 1031 exchange. If you escrow your sales proceeds at closing and reinvest the money in another property you can defer the capital gains tax. You have up to 45 days from when you sell your property to identify a new property to buy and 180 days to close on the new property. Other rules apply.

Should I leave my land to my kids? Х What about taxes? Х Broken Promises.
Appraisal Services Х Who is Land For Sale, Inc.? Х Here's the Dirt

Land For Sale, Inc. Х 763-420-4757
P.O. Box 2316 Х Maple Grove, MN 55311
Laurie E. Karnes, Broker/Owner
landforsale@visi.com