Land Sale and Taxes Question

[Bud]

I have a question. I will definitely consult a tax professional, but am just in the "thinking about it" stage.

If I sell off a part of a property and use the proceeds to pay off the rest of the property is it subject to income tax?

I have 200 acres. 100 is hunting land and 100 is farmland usually put in cotton. I am considering selling the farmland to pay off the land and the house we built on the land. I don't really use the farm land (lease out) and would really like to be debt free, but don't want to give a lot back in taxes.

Thanks

[Texans42]

Depends on what your cost basis vs sale price is and what you have already written off.

Short anwser need to see CPA preferably one that's deals with farm and ranch.

You might look into crop share vs lease. You could be costing yourself a lot on your long term proceed average.

[texan4ut]

I am no expert but I do know if you sell property you have x amount of years to re-invest in property so you don't have to pay capital gains tax.

[M16]

I am no expert but I do know if you sell property you have x amount of years to re-invest in property so you don't have to pay capital gains tax.

Really? Tell us how that works. I thought you had to do a 1031 exchange.

[Burnadell]

Short answer is yes....IF you sell it with a gain. The amount of the sale proceeds over your cost basis is considered profit and is taxed as a capital gain, not as ordinary income tax. Since you intend to use the proceeds to payoff debt, the 1031 exchange possibility does not come into play.

[CabezaBlanca]

I do know if the sale price is under $250,000 for single and $500,000 for married then you don't have to worry about it. I believe you have 30 days to file a 1031 exchange if you have to.

[TWP]

1031 is null and void here, no? He isn't buying another property, simply using proceeds to pay off debt.

Initial gut feeling is cap gains, if he didn't buy and turn it around ASAP why would it be ordinary income??? I have no idea, just wondering.

Good luck with your sale!

[LWD]

Short answer is yes....IF you sell it with a gain. The amount of the sale proceeds over your cost basis is considered profit and is taxed as a capital gain, not as ordinary income tax. Since you intend to use the proceeds to payoff debt, the 1031 exchange possibility does not come into play.

This is the correct answer based on the limited information available, but definitely consult a tax professional to insure that all options have been discussed and explored given your overall situation.

LWD

[M16]

1031 is null and void here, no? He isn't buying another property, simply using proceeds to pay off debt.

Correct. I was responding to the erroneous post.

[Burnadell]

I do know if the sale price is under $250,000 for single and $500,000 for married then you don't have to worry about it. I believe you have 30 days to file a 1031 exchange if you have to.

Can you please explain those limits further?

I believe you are thinking of a homestead, no?

[rferg84]

How long have you owned the property? Over a year?

Going to come down to cost basis in property vs what you sell it for.

Most likely taxed as a capital gain.

Was it personal use, ag related, commercial?

[bentstick]

Does re-platting the land reset the cost basis? Farm land should be valued higher than the average of both parcels.

[Burnadell]

Does re-platting the land reset the cost basis? Farm land should be valued higher than the average of both parcels.

No.

Appraised value at a later date than it was purchased has no bearing on the cost basis. Now, if the land was inherited, the cost basis steps up to the current (or possibly 6 months later) appraised value at the time of death of the deceased owner.

[Bud]

I bought it 13 years ago and it has been used for ag use. Thanks for all the info. I will check with a tax pro before I do anything. Always a lot of good knowledge here.

Bud