An empty lot can be a profitable investment, but it’s also a taxable one. Local governments levy property tax on empty lots just as they do homes and shopping malls. The rule of thumb is that assessors tax empty lots at their “highest and best use,” even if you’re not sure how the lot will be used.

Are proceeds from the sale of land taxable?

The sale of land is a taxable event if you sell it for a profit. The taxes on land sales can be pretty steep if your land has greatly appreciated in value since you bought it. However, there are ways to reduce the amount of taxes that you pay.

Is the sale of land considered a capital gain?

Vacant land is usually considered a capital asset subject to capital gains tax (CGT). However, when land transactions are undertaken as part of a business activity, sale proceeds may be considered ordinary income and subject to GST.

How are closing costs reduced when selling land?

You can increase your purchase price — or, more generally, your cost basis — by adding any closing costs from when you bought the land and any improvement costs that you incurred during your ownership. You also reduce your selling price by subtracting your commissions and closing costs at the sale.

How to calculate capital gains on sold land?

Calculate your gain by subtracting your cost from your sales proceeds. You may have to adjust your cost, also known as your “basis,” upwards or downwards for any number of reasons. For example, legal fees or zoning costs might increase your costs, thereby lowering your taxable gain.

What happens when you sell land for a loss?

In addition, if you sell your investment land for a loss, you can use that loss to offset other capital gains that you earn in that year. When your land is part of your home, you get to include it in your home’s sale.

When do you have a long term gain on a land sale?

If you sold the land more than one year after you bought it, you have a long-term gain. If your sale was one year or less after you acquired the property, it’s a short-term gain. Select a tax-filing status.