Land sale tax question.

[Scott85]

There are some very very smart people on the forum so I figure I would ask the question here.

Back story
I own land back east and I have no desire to move back. The land was given to my cousin and me. I own one half of every acre. It’s deeded that if one of wants to sale the land the other has first right refusal and has to be sold at appraise tax value. My cousin and I really don’t get along. So I’m thinking about selling it.

So my question since for taxes since the property was a gift do I pay taxes of the whole value of land or half the value? Also is there any tips or tricks to lower the amount or taxes paid or eliminate them all together?

 

[BigHornRam]

PM sent, Scott.

 

[Boarmaster]

I would talk to an accountant.

 

[Big Fin]

Depends. Your basis, in other words, cost, is dependent upon how you acquired it.

If it was truly a gift and not an inheritance, you take the basis of the person who gifted it to you.

If it was an inheritance, you take the basis at the fair market value on the date of death.

Your gain is the sales price of your half interest, minus your basis, minus any selling or transaction costs. It will be long-term capital gains if held more than a year by you or the person you acquired it from.

To defer the taxes you could do a Sec 1031 exchange, but those arrangements have more transaction costs, so look into those costs before doing such.

 

[Scott85]

Depends. Your basis, in other words, cost, is dependent upon how you acquired it.

If it was truly a gift and not an inheritance, you take the basis of the person who gifted it to you.

If it was an inheritance, you take the basis at the fair market value on the date of death.

Your gain is the sales price of your half interest, minus your basis, minus any selling or transaction costs. It will be long-term capital gains if held more than a year by you or the person you acquired it from.

To defer the taxes you could do a Sec 1031 exchange, but those arrangements have more transaction costs, so look into those costs before doing such.

Thank you! It was gift, it was transferred to us about 5 years before his death.

 

[Big Fin]

Thank you! It was gift, it was transferred to us about 5 years before his death.

OK. Then your basis is one half of what he paid for it. The basis attributed to your cousin is the other half.

 

[Scott85]

OK. Then your basis is one half of what he paid for it. The basis attributed to your cousin is the other half.

Thank you Randy. I guess things got more complicated. 25 acres were inherited to my grandfather and his sister. In the 90s he got her share for her not helping with taxes. The other 75 acres are what’s left of 100 acres. 5 people went together on the 100 acres and my grandfather purchased everybody out except one who spilt off with their 25 acres. The 100 acres now 75 acres were purchased in the 50s for back taxes.

 

[Big Fin]

Here is the formula.

Your grandfather got half of the 25 acres as inheritance. His basis in that half of the 25 acres is what it was worth on the date of death of the person whom he inherited it from. His basis in the other half of the 25 acres is what he paid on the back taxes (if he did not deduct those as property taxes on his personal return or a business/rental schedule).

His basis in the 75 acres is the price at which he bought out the other family members for their interest.

Add those two together and you get his total basis in the 100 acres. You get half of that basis.

Too bad he didn't hold it until death and bequeath it to you and your cousin. That would have established a new basis at his date of death, eliminating a lot of the capital gains you will pay. The increase in basis to FMV at date of death is termed "Step up in basis." It would have also made the calculation much easier.

 

[Scott85]

You rock Randy!!! Thanks for help!!