Selling Property, got a few questions.

[Alphacowboy]

So, the wife and I have been talking, and we are thinking about selling off 1/2 of the land that we own. We reciently purchased the land and our house but really have no need for 9. 4+ acres of land. I have posted up on this before on another forum, but am going to put this on the market hopefully next week or so. But my question here in lies, how are taxes going to hit me? If I was to sell a lot (~4 acres) it is roughly valued at $195,000. I am wondering, how do I sell this, and protect it from capital gains taxes? If I was to use this money for a complete remodel of my house, basicly using the revenue for home repairs, would I avoid high tax penalties?



Also, anyone want to buy it? Here is what it looks like... .



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plus, I am trying to decide on the best way to split up the lot. there is a larger area along the road for a house... . but might have issues with setbacks from the road. In the back, on the other side of the trees, there is a nice big area that is flat, but you would have to build a bridge across the little creek in the tree line. Also, your back yard would be that house you see on the edge of the lot line (looks like his detached garage is on my property!)

 

[Alan Reagan]

I'm not sure if you can take the one time relief on the capital gains tax or not. That's the one time relief for selling a home or second home.



I don't think your plan to roll it into home improvement will get you out of the tax.



I don't know who does your taxes, but a CPA would be a good one to answer this question for you. We use a CPA to do ours every year and the firm is gracious enough to answer questions any time we call them about stuff like this. If you don't have a CPA and really want an answer, I could probably call our guy and ask him.

 

[BigEasy]

The way I understand it, is that you only have to pay CG tax if you sell it for more than you paid for it, and you only pay the tax on the difference, hence the capital gain... so unless you got a smokin deal on the house and property and you're selling the property for more than you paid for the whole shebang, you shouldn't have to worry about CG for selling part of the property. You will have to pay income tax though.



Find someone to pay cash or do a land contract... that'll be the way to keep more of your money.



That being said... I'm glad I don't live where real estate prices are that stupid. I'm buying 55 acres of relatively flat, standing hardwoods with OGM rights for $75k.

 

[Rman]

IF you re-invest it in the same type of land (in this case undeveloped, there's no tax) I'll ask my wife, she's a real estate broker and deals with this a lot.

 

[SSabick]

Land contract, A portion of the Monthly proceeds go towards the sale of the land, and deposit, and then at the closing you have the contract read that the sale is the difference in the two (Say $195,000-2yrs of payments =10,000, or what ever=185,000) Or you can work it out to where the new owner pays it down quite a bit more than that. At closing you will show a smaller dollar amount, and it will lessen the amount of taxes you have to pay. You will have to file the income, Say $100 off the payment received for your troubles per month, but income tax is much lower than the capital gains. If your lucky you will get someone to pay you half or better in the allotted time, and you will only have to claim that portion on the closing statement. You can't avoid capital gains without an illegal transfer. It has to be filed at the courthouse (recorders office) for the records. Even Cash money settlements have to have some documentation, and a transfer of something of value. In Indiana, you can claim Love and affection as a value . I would advise you to get a sizeable Down payment, and Deposit, to be used at closing. NON-REFUNDABLE in writing! Problem is you have to get a good legale contract, and you are still at risk of the buyer bailing. If he does though, you have a sizeable down payment, and deposit, and more valuable land. Oo. Just a suggestion though.

 

[RandyHamilton]

I'm with Big Easy here

I bought a 1900sqft house on 5 acres with a . 75 acre stocked pond 2 years ago for less than you are selling 4 acres!!

 

[CSnyder]

Alpha, you can sell that property off without capital return taxes if you do a storker fund or also what is known as a 10-31 exchange. These will protect you from the tax as long as you reinvest the money into similar property only within a 6 month period and it must be new property not just remodeling your house. Right now capital gains taxes are set low at around 15% thanks to your Minnesotan republicans. Keep in mind you will only pay this tax on what you make up and beyond what the property cost you and since you just bought the property I would guess you dont have a lot of equity in it or a huge jump in the value. I know about where your place is and I would recommend you talk to a few developers before you jump the gun to dump that land because it may net you millions down the road when Lakeville expands further. I had a similar experience when I bought my 5 acres off Pilot Knob in Farmington and I paid nearly 25,000 an acre for it but built my house and within 5 years I had sold it to a developer for a huge profit that paid off my 5800 square foot home and lined my pockets well enough to buy a farm here in Iowa. I sent you my numbers in a PM if you have more questions about this. Chris

 

[Alphacowboy]

Thanks Chris! I have been thinking about the development part... . as there is a house on each side of me with about the same acrege. now, I would hate to move, but if each one of us was offered 1-2 mil to pack our bags and move, i would totally do it in a heart beat. Cool thing is, I could buy a NICE lot from my Dad just 15 minutes south of me, and build a house, and probably be better off than I am now! I will call you tomorrow Chris, again, thanks!





Randy, I know, its crazy, but you have to take in account, I live ~30 minutes away from both down town St Paul and Minneapolis. I live less than 2 miles off the main freeway (I-35) Lakeville is the largest growing town in Minnesota... and its not just your little houses, this is like the creme of the crop area, we are talking 5-10k square ft houses on 2-5 acre lots with a radius of 2-3 miles of my home. I have 3 or 4 golf courses with in 5 minutes of my house, including two executive courses, they are top notch.

 

[CSnyder]

I bought a 1900sqft house on 5 acres with a . 75 acre stocked pond 2 years ago for less than you are selling 4 acres!!





Randy, as Alpha said it all depends on where you own property that makes its value. When I left MN I came to Iowa and bought my 169 acre farm with 100 acres of timber and the balance tillable with a building site which contains my 3000 sq ft home and a huge pole building and has a major river running thru my back yard for only 1500 an acre. I have since turned the property into a park like setting and built a campground on the river bank and built a number of trails thru the timber ground. I have alot of time and investment into making my place nice and still have lots of plans to finish. I was recently offered 125,000 for 26 acres on the opposite side of the road that I own that I have not done anything with yet, but I have plans to eventually build a house there myself on top of the bluff in a 5 acre field setting that overlooks the entire valley I live in. My farm adjoins the property that some of the worlds biggest trophy bucks have been taken from which even last season netted a guy a 12 point doe. I have an average of 30 hunters a week wanting to hunt my property during season. I had one guy offer me 5000 for exclusive rights but declined, my wife said I was nuts for doing it because she could have had a boob job for that, but I only want people I know and trust on my property. Anyways you get my point I'm sure. As a side note a guy can buy a decent size farm house with 20 acres out in North Dakota for less than 25,000 if you can handle the winters. Take care and God Bless, Chris

 

[RandyHamilton]

I hear ya Chris and Alpha. . I am just glad I live where I do. .

 

[rubberneck]

Thats a screaming deal around here, if you could even find 5 acres. 10 is hard to find, 20 a little more common and larger is available if you have the coin to grab it up. location location location baby. I just built 6100sf on 10 acres, and People told me i was dumb to pay as much as I did for my 10 acres almost 4 years ago. Now everybody asks me how i got it so cheap I am less than 2 miles from a booming small town, and the orchards that are "in the way of development" have been getting offers of 250-350k/acre. I cant wait. Im cashing in packing up and heading out. My wife says it would be over her dead body that she would leave the new house. Man im gonna miss her. LOL :-laf (just kidding honey) :-{} House is too dang big anyway. I know the old man that i bought from did a 10-31 on another plot for tax reasons, that is something you may want to check out.

 

[rubberneck]

I had one guy offer me 5000 for exclusive rights but declined, my wife said I was nuts for doing it because she could have had a boob job for that

Dude you are nuts, my vote would have been for the boob job. LOL



Seriously though, i hear ya. With the way the laws are and people wanting to sue for everything. It's probably not wise to let people unknown to you loose on your property with guns.

 

[Holysmokes]

(~4 acres) it is roughly valued at $195,000

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1 thing I might check into is how much easement needs to be between your lot and that garage. I ve seen anywhere from 10' - 50' from the property line. They only reason I bring it up is because it might be kind of hard to get fininancing if the garage is not within that said easement. FWIW

 

[RGardner]

If you are going to sell any profit will be subject to capital gains tax, which is the best tax there is. If you do decide to do a like kind exchange (1031) get your ducks in a row before hand. Do not take any cash in hand! Everything has to go through an escrow account or be a land trade.