Today we hear from Lea Anne in Kentucky who tells us. “I sold 8 acres of land for $25,000.00 that I bought for $15,000.00 8 years ago. I added at least $10,000.00 worth of improvements to the land, including a building, a road, electric, water, and clearing it. There was once a trailer on the property that I lived in for 2 years. But that wasn’t part of the sale. How much tax will I have to pay, if any at all?”
Dear Lea Anne,
You’ve got two different issues here.
As a sale of investment land, you may not have any gain at all. In fact, once you pull together all the records for the improvements, buying costs and selling costs, you’re apt to have a deductible loss.
Then you went and added a little twist. You lived on the property for two years.
That turns it into your personal residence. Unfortunately, the tax code doesn’t allow us to take a deduction for any losses on the sale of our personal residences.
Now, for it to be your personal residence, you had to live in it for two years out of the last 5 years. If you lived on the property more than five years ago, it no longer qualifies as your personal residence.
In that case, not only will you pay no tax on the sale, you’re apt to have a deductible capital loss. Use Schedule D.
And remember, you can find answers to all kinds of questions about land sales and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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