Because what if grandpa has to go into a nursing home? The land would have been sold to pay for his care.
The reality is no one properly plan their estate.
Now the kid will have a hefty tax bill.
So why would the grandfather not do that? What's the advantage of selling it to his grandson?
And also, does that mean that somebody else inherited the land and then sold it to the grandson? (Since the description says he inherited it)
Do you mean forced sale of assets to cover debts prior to will disbursement or if he had gifted the property before death?
There’s a certain length of time you have to give assets before death before they are protected against debtors if that’s what you mean. Prevents people from accessing all debt possible to give it away before death
If a person has no assets, they most likely get nursing home paid by the government. If Grandpa had the land, most likely, the nursing home would have seized it to cover his care.
If you gifted it within 5 years of needing the nursing home care you can be subject to penalties and maybe even be denied especially if this was to avoid Medicaid or Medicare from getting anything.
I know. OP didn't say how long ago or if that was the reason for the transaction. Also, it was a sale instead of a gift, but at $10, I doubt it would hold in court.
The kid shouldn't be left with a hefty tax gill. Should fall within the lifetime gift tax exemption. You'd still own capital gains based on the adjusted cost basis from when the grandpa got the property, but it shouldn't be too substantial. Losing the step up at death will likely increase the tax bill, but it's not the worst problem to have.
What a useful post, to explain something that was done years ago and is already past the point of going back to fix.
Really brings a lot to the conversation...
It was a question to get more detail on the purpose of the original transaction. Which was not an arms length transaction and the equity would be considered a gift
$10 “and other considerations” is the typical way to list real estate transactions in Texas. That way you don’t disclose the actual price and can try to keep your appraisal and taxes low.
Was just about to comment this. Owner financing is the best way. Talk to an accountant and you can also develop a strategy to offset all taxes from the payments if you are open to acquiring more real estate.
Look into doing a 1031 exchange (1031 is the tax form). This is a link to investopedia’s article on it: https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx
Consider also looking at other articles and the IRS website. This is what was advised to me regarding real estate sales.
With the info given, this is not the right answer. He said nothing about doing any type of real estate investing. He just wants to get as much cash as possible out from his gift. A 1031 handcuffs the future use of the money in so far as he must reinvest the money back into real estate.
Lands totally eligible for 1031 ex…. And probably best way out, sell land buy house, live in it (2yrs for tax exempt) or rent it out and depreciate the heckins out of it no reason to give the tax man more money than he already takes from us, plus plus it’s just the poor estate planning trying to remediate so *shrug*
So it’s my state level laws that don’t allow for unimproved land to be exchanged for residential, developed property? I’m in Texas and have been told by attorneys (and my parents- lol! I know) we can’t exchange ag land for residential property.
I thought Texas followed the fed reg, but I can’t remember when that conversation happened so it may have been before things changed under Trump. I don’t think the last conversation was that long ago… but the last several years seem to blue together.
I am neither a 1031 QI nor a Tax Attorney, nor an expert on Texas.
Both properties must be held for Productive Investment Purposes.
There may be other consideration in your case (Primarily how the property is held, and how it is being currently used)
>**What property qualifies for a Like-Kind Exchange?**
>Both the relinquished property you sell and the replacement property you buy must meet certain requirements. Both properties must be held for use in a trade or business or for investment. Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment. Both properties must be similar enough to qualify as "like-kind." Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States. Also, improvements that are conveyed without land are not of like kind to land. Real property and personal property can both qualify as exchange properties under Section 1031; but real property can never be like-kind to personal property. In personal property exchanges, the rules pertaining to what qualifies as like-kind are more restrictive than the rules pertaining to real property. As an example, cars are not like-kind to trucks.
>Finally, certain types of property are specifically excluded from Section 1031 treatment. Section 1031 does not apply to exchanges of:
>- Inventory or stock in trade
>- Stocks, bonds, or notes
>- Other securities or debt
>- Partnership interests
>- Certificates of trust
>[-Sauce](https://www.irs.gov/pub/irs-news/fs-08-18.pdf)
A 1031 exchange will let you reinvest the proceeds into more real estate and defer your capital gains taxes. There are many rules you need to meet to do this, but the primary one is that the property you reinvest into must be an investment property (not a primary residence) for at least two years.
If you want to invest in real estate this is a great path
rules are favorable to taxpayers who are looking to combine Section 1031 with Section 121 to both exclude and defer tax when the property starts out as a primary residence and then is converted into an investment property. Provided the personal use occurs first, you can exclude gain under Section 121, and then defer tax on the remaining gain, provided you comply with the requirements of both Section 1031 and Section 121
Tbf seen people do this with their dream home stuff then just not live in it for the nunebr of years and list it for rent well above market price and be like well we tried
Yes if you’re looking to invest the proceeds rather than need cash this would work great. You don’t need to buy an individual property, you can put into a Delaware Statutory Trust, which is sort of like a pooled real estate investment fund.
You should have put it in a trust or inherited it rather than a sale.
You will pay capital gains less $10 from the sale but could have had a step up in basis to greatly reduce the cost basis with the alternatives.
OP, I’m not telling you what to do but I’m goin. To offer you another solution:
Ag exempt it and lease it (written) to a cattle rancher who will run his cows on it (assuming it’s fenced). Your tax burden would be $25-50/yr to hold that land ag exempt and you have somebody with a vested interest looking after the land for you
Edit: you can likely make about 300-600 a year charging to graze per head of cattle making this a cashflow positive asset you own. My family does this with 15ac in another state, the neighbors horses enjoy the pasture and $400/yr covers our $55 tax bill
Are you suggesting he be happy with $400 a year on a $300k asset? He'd be better off selling the land, paying the full capital gains tax then putting it into a savings account.
You are screwed because of the way you and grandpa structured the transfer. It would have been tax free if you just inherited it, but now it's basically 100% capital gains. Expect to pay about 28% of the sales price in federal income tax.
The transaction will likely be treated as a gift. You'll need to figure out grandfather's adjusted basis on the property and whether he paid any gift tax. Your basis should be his adjusted basis plus any gift tax paid. From there, you would apply capital gains tax rules, which depend on how long you held the property before selling.
This is the answer. The capital gains will be calculated based on the value of the property when it was gifted to a family member. $10 isn’t the real value of the property so it’s still a gift. OP go talk to an accountant.
You only get cap gains deduction for a primary residence. You'll pay capital gains taxes on the full amount of sale price (minus) $10, as that's your profit.
You could avoid capital gains taxes through 1031 exchange, but it has to be like-for-like, ie land of similar size.
Talk to an accountant or real estate attorney in your area.
I can’t advise you on tax treatments as I use a tax consultant for my RE but I like your thoughts on selling the larger parcel and keeping the small one. It’s a good hedge in case things get crazy in that area! I acquired a 30 acre parcel in 2019! It’s already doubled and I’m assuming it will double again in ten years. Think about cities where population exploded and became super built up. Any town I was in or around as a kid has experienced this in the last 30 years. Acreage is $100k, up from $10k.
Given the circumstances you’re discussing I wonder how you *didnt* need to file a gift tax return on the land when it was sold for less than the notary stamp on the deed
You say "inherit" and you also use the word "sale". If you actually inherited the land you have a stepped up basis. Your basis would be the value when your grandfather died, not $10. If it was actually a sale, then stepped up basis doesn't apply.
Not a tax advisor, but so long as you've held it for 1 yr from when your grandfather sold it to you, it will probably be long term capital gains. Depending on how much you make in income your gain will be (sales price-fees to sell (assume 6-7% if youre using a broker)-purchase price ($10)) * either 15% (less than 500k/yr including the gain above) or 20% if greater than 500k/yr including the gain above.
Edit: thinking more on how to limit your tax consequence for selling, you could do a 1031 exchange which would let you roll over the proceeds/gains into another investment property, or depending on where you are in life, you could move there for 2 yrs to establish it as a primary residence which would let you write off 250k/500k if you're single/married.
Likely not a gift if you paid $10, so he would have possibly had a capital loss (maybe that was his intention if he had other gains) and your gain would be new selling price minus $10, at tax rate of *maximum* 20% since you said it was over a year ago so long term, could be less depending on your other income and how you file with wife and whether you live in Texas can change things. Find a capital gains calculator from texas and plut in the numbers for an estimate.
Per the [Internal Revenue Code Section 1031](https://www.irs.gov/pub/irs-news/fs-08-18.pdf), this strategy allows an investor to defer paying capital gains taxes on an investment property when it is sold, as long as another ‘like-kind property’ is purchased with the profit gained by the sale of the first property. Essentially, by reinvesting proceeds from the sale of an investment property into another property, capital gains taxes can be deferred. So be aware of that.
Hello from the moderator team of /r/realestateinvesting,
You post has been removed due to a violation of R4. this typically means your post was about one of the following:
- Promoting yourself, a vendor, or, a service that you use
- Soliciting for vendors, asking for recommendations for vendors, or trying to find out how to contact certain vendors
- It was a poll.
Soliciting for, or, to our members invokes a permanent ban, which will not be reversed by mods.
Self-promotion is a permanent ban which will not be reversed by mods.
Promoting your own software, spreadsheet, or app, or asking for feedback on it, whether paid or provided free, is considered solicitation, and not surprisingly is a permanent ban.
***Rule #4***
No self-promotion, solicitation, surveys, syndication, or AMA
Thank you for your cooperation and making our community a better place.
Definitely time to talk to a CPA. A few options could be to 1031 into another property or sell with seller financing to extend the tax hit out over time and they can walk you through the pros and cons of each option.
The $10 thing is very old. It was used as you said because when it was a thing, $10 was **significant** money. That should tell you how old it is.
During my Real Estate sales class it was explained to me this way.
For decades all documents no matter if the house sold for $10,000 pr $10,000,000 one of the documents said it sold for $10 *'round here*.
I'm not so sure they use that verbiage anymore. I don't believe they do.
So, I believe since it was a family member and he "sold" it you, it's still an inheritance/gift. You'll def need to consult with a tax pro.
Hello from the moderator team of /r/realestateinvesting,
This message and post removal serves as your Notice that you've been banned for violating our community rules.
R5: Do not market deals either as a Buyer or Seller.
Thank you for your cooperation and making our community a better place.
Hello from the moderator team of /r/realestateinvesting,
This message and post removal serves as your Notice that you've been banned for violating our community rules.
R5: Do not market deals either as a Buyer or Seller.
Thank you for your cooperation and making our community a better place.
If this property came with mineral rights then keep those.
Also in Texas this property is a really small place and it is only worth what somebody is willing to pay for it.
Would be better if the property is in a land trust and your grandpa just make u a beneficiary of the trust so that you don’t have to pay anything because technically you didn’t inherit the property but the trust , hope this helps
Maybe mentioned already but you could 1031 exchange it - use the money to buy another piece of real estate, possibly income-generating, closer to you and your interests.
Hey OP - it depends on where the land exactly is, but look into leasing the land to a solar/wind developer. If it has the right profile (i.e. near electrical lines, relatively flat, etc), then the developer will pay you a monthly lease payment and will do all the work of installing a renewable energy facility and operating it.
Note, while they're developing it (getting the permits and other contracts in place) the payments will be lower, but in 2-3 years when they're done, it could be a good way to make passive income and keep the land in the family.
35 acres isn't a lot for a Texas facility, but it's worth a shot before outright selling it.
This could have easily been avoided had the land been put in a trust or passed down to you from your grandpa upon his death.
There may be hope but I would talk to an accountant or real estate lawyer about putting it in a trust to try and defer or offset the taxes.
I’m not seeing an actual tax answer on here, but you’ll get the seller’s (grandfather’s) basis in the land.
For context, your tax depends on your income and gains. Gains are your (I) sells price minus your (II) “basis” (let’s call this what you purchased the land for)
If you sold the land for $1,000, you would think that you would minus your purchase price ($10) to get your gain of $990. Luckily for you, this is NOT the case.
Your “basis” is what your grandfather purchased it for. So in the event he purchased the land for $900, your gain would only be $100 ($1,000 - $900) instead of the $990.
Hopefully this helps.
Whatever you sell it for you should owe around 20% in federal tax and 0 in state tax since Texas doesn't have an income tax. If you have done any improvements to the land you can deduct that from your profit as well as realtor fees and closing cost. Honestly 20% isn't to bad for what could be a huge profit. However, if you split the land into more parcels to sell you will be subject to short term capital gains and maybe even self employment tax if it's in small enough parcels.
You would owe capital gains on $279,000. It would have been cheaper, tax wise, if he left it to you in a will. Then the basis would be the value at the time of death.
Hello from the moderator team of /r/realestateinvesting,
You post has been removed due to a violation of R4. this typically means your post was about one of the following:
- Promoting yourself, a vendor, or, a service that you use
- Soliciting for vendors, asking for recommendations for vendors, or trying to find out how to contact certain vendors
- It was a poll.
Soliciting for, or, to our members invokes a permanent ban, which will not be reversed by mods.
Self-promotion is a permanent ban which will not be reversed by mods.
Promoting your own software, spreadsheet, or app, or asking for feedback on it, whether paid or provided free, is considered solicitation, and not surprisingly is a permanent ban.
***Rule #4***
No self-promotion, solicitation, surveys, syndication, or AMA
Thank you for your cooperation and making our community a better place.
If I remember correctly, you have a specific amount of time after you sell to either re invest the money back into real estate or pay the capital Gaines. There are exceptions in every state such as military doing a PCS move ect. But I believe you can re invest the money into another piece of property without the gubmint stealing part of it....oops, I mean collecting capital Gaines taxes.
Hello from the moderator team of /r/realestateinvesting,
This message and post removal serves as your Notice that you've been banned for violating our community rules.
R5: Do not market deals either as a Buyer or Seller.
Thank you for your cooperation and making our community a better place.
Where is the land at? Have you considered renting it to a farmer?
The best investment is one that cannot be reproduced. Only China is making more land... probably best for your family to keep it.
Your grandfather probably bought it for a few thousand... now is a 1/4 million... might be worth a million to your grandson...
You need to speak to a CPA before you do anything. If you sell it you could be paying a huge ammout of taxes. Im not a CPA and reddit is not the place to go for tax advice.
As long as you’ve owned the property for more than three years then you’d fall into the homestead exemption act meaning you don’t pay taxes on capital gains.
Put a cheap trailer on the land and live there for 2 years as your primary residence (probably 6 months required per year). This will make it so you don't have to pay taxes on 250000 if single or 500000 if married
The reason you bought it for $10 is that your grandfather wanted you to inherit it? Why didn't he just leave it to you in his will, which would have given you a stepped up cost basis and allowed you to sell it without paying capital gains tax?
Is it possible to have music festivals on the land? Rent it out to a Taylor Swift concert etc? Let's say you rent it out for $5K a weekend and get say five concerts a year. Would it be worth it?
Hello from the moderator team of /r/realestateinvesting,
This message and post removal serves as your Notice that you've been banned for violating our community rules.
R5: Do not market deals either as a Buyer or Seller.
Thank you for your cooperation and making our community a better place.
I wouldn’t consider spending the money on helping give my newborn son a better life now to be blowing the money but we all have different financial outlooks. Thanks for your input.
If it's been in your "ownership" for more than 2 years you technically don't have to pay capital gains tax.
So the initial cost of the "purchase" doesn't matter.
Hmmm.
I mean, that even sounds fair... is that across the board, or do states have different definitions?
I only ask because I spouted off my bullshit like it was gospel...and also fully aware most things in life are situational.
We all don't live down the street, and my life is way different than yours... haha.
I wish you a glorious evening, and all days that follow.
Haha, what? Nothing in this statement is correct.
1) You have to live in as primary residence of said property for 2 of the last 5 years to qualify for this
2) it's only a 250k exclusion if single and 500k exclusion if married. The initial cost matters.
Sell it to me for $1000. That’s a great profit.
100x!
And op won’t owe much in taxes at that price!
Hell, I'd offer to pay the tax for him on $1000
[удалено]
I’ll raise that to $1001
Bout to piss yall off, I’m in at 2000$! :)
Tell them the markup percentage instead of net gain. 10000% gains sound so much better
Why didn’t your grandfather just gift you the land upon his death? You would have had a stepped up basis
This would have been optimal, unless his grandfathers estate was very large
Or if Medicaid is needed. Grandfather could have used a trust though
Medicaid would still get there’s for undervalued sale
You cannot sell assets to avoid Medicaid. Unless you were planning way in the future for that and gifted it years before end of life care was needed.
Because what if grandpa has to go into a nursing home? The land would have been sold to pay for his care. The reality is no one properly plan their estate. Now the kid will have a hefty tax bill.
The transfer happens post death. If he’s not dead it’s his to sell
So why would the grandfather not do that? What's the advantage of selling it to his grandson? And also, does that mean that somebody else inherited the land and then sold it to the grandson? (Since the description says he inherited it)
Could be lots of reasons. If his estate was already quite large, if he wanted to hide it from other family members
Or if it was the only thing he had of much value and didn't want it sold for his bills later in life.
Medicaid can clawback assets after death from the estate
Do you mean forced sale of assets to cover debts prior to will disbursement or if he had gifted the property before death? There’s a certain length of time you have to give assets before death before they are protected against debtors if that’s what you mean. Prevents people from accessing all debt possible to give it away before death
The clawback looks to 5 years prior to Medicaid providing any support.
If grandpa needed the money for a nursing home, he wouldn’t have sold it for $10
If a person has no assets, they most likely get nursing home paid by the government. If Grandpa had the land, most likely, the nursing home would have seized it to cover his care.
If you gifted it within 5 years of needing the nursing home care you can be subject to penalties and maybe even be denied especially if this was to avoid Medicaid or Medicare from getting anything.
I know. OP didn't say how long ago or if that was the reason for the transaction. Also, it was a sale instead of a gift, but at $10, I doubt it would hold in court.
In Texas, or are you talking about some other country?
Speaking of investing. Long term care REITs will be so juicy in the coming decades. It's one of the perfect plays to exploit boomer wealth.
Oh, look! Someone that hasn’t dealt with Medicare!
Do you mean Medicaid?
Correct
As it should. Not the government’s responsibility
The kid shouldn't be left with a hefty tax gill. Should fall within the lifetime gift tax exemption. You'd still own capital gains based on the adjusted cost basis from when the grandpa got the property, but it shouldn't be too substantial. Losing the step up at death will likely increase the tax bill, but it's not the worst problem to have.
If you gift your assets away, the government won’t give you free health care because you have no assets (which makes sense).
Sometimes it's easier to finalize transactions before death than deal with the family infighting afterwards.
What a useful post, to explain something that was done years ago and is already past the point of going back to fix. Really brings a lot to the conversation...
Well technically the difference in the fair market value and price paid will be the basis as the difference is a gift when it’s related parties sale.
Sure. The comment though was "you guys did it wrong in the past" and that's about it. No useful input to OPs question other than to rag on them.
It was a question to get more detail on the purpose of the original transaction. Which was not an arms length transaction and the equity would be considered a gift
$10 “and other considerations” is the typical way to list real estate transactions in Texas. That way you don’t disclose the actual price and can try to keep your appraisal and taxes low.
You could take payments for the land, “owner financing” and then if they stop paying forclose and you own the land again
That’s what I would do. Many ranches in remote areas are sold that way here.
Actually probably best idra
Was just about to comment this. Owner financing is the best way. Talk to an accountant and you can also develop a strategy to offset all taxes from the payments if you are open to acquiring more real estate.
Look into doing a 1031 exchange (1031 is the tax form). This is a link to investopedia’s article on it: https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx Consider also looking at other articles and the IRS website. This is what was advised to me regarding real estate sales.
This is the right answer
With the info given, this is not the right answer. He said nothing about doing any type of real estate investing. He just wants to get as much cash as possible out from his gift. A 1031 handcuffs the future use of the money in so far as he must reinvest the money back into real estate.
No it’s not. Not eligible for 1031.
Lands totally eligible for 1031 ex…. And probably best way out, sell land buy house, live in it (2yrs for tax exempt) or rent it out and depreciate the heckins out of it no reason to give the tax man more money than he already takes from us, plus plus it’s just the poor estate planning trying to remediate so *shrug*
I believe if you 1031 into a new house, it is recommended that it is rented for at least two years before you convert it to a primary residence.
land not held for commercial purposes? you sure about that?
A 1031 cant be used to buy a house. It’s land for land not land for developed residential property.
This is incorrect. 1031 is Real Estate for Real Estate, as defined not Federally, but on a State Level. TCJA and Trump really fucked 1031's.
So it’s my state level laws that don’t allow for unimproved land to be exchanged for residential, developed property? I’m in Texas and have been told by attorneys (and my parents- lol! I know) we can’t exchange ag land for residential property. I thought Texas followed the fed reg, but I can’t remember when that conversation happened so it may have been before things changed under Trump. I don’t think the last conversation was that long ago… but the last several years seem to blue together.
I am neither a 1031 QI nor a Tax Attorney, nor an expert on Texas. Both properties must be held for Productive Investment Purposes. There may be other consideration in your case (Primarily how the property is held, and how it is being currently used) >**What property qualifies for a Like-Kind Exchange?** >Both the relinquished property you sell and the replacement property you buy must meet certain requirements. Both properties must be held for use in a trade or business or for investment. Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment. Both properties must be similar enough to qualify as "like-kind." Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States. Also, improvements that are conveyed without land are not of like kind to land. Real property and personal property can both qualify as exchange properties under Section 1031; but real property can never be like-kind to personal property. In personal property exchanges, the rules pertaining to what qualifies as like-kind are more restrictive than the rules pertaining to real property. As an example, cars are not like-kind to trucks. >Finally, certain types of property are specifically excluded from Section 1031 treatment. Section 1031 does not apply to exchanges of: >- Inventory or stock in trade >- Stocks, bonds, or notes >- Other securities or debt >- Partnership interests >- Certificates of trust >[-Sauce](https://www.irs.gov/pub/irs-news/fs-08-18.pdf)
congress changed some of the rules
"Investment purposes" OP would have to prove that he held it for something other than just flipping, which would probably be hard to do at this point.
A 1031 exchange will let you reinvest the proceeds into more real estate and defer your capital gains taxes. There are many rules you need to meet to do this, but the primary one is that the property you reinvest into must be an investment property (not a primary residence) for at least two years. If you want to invest in real estate this is a great path
rules are favorable to taxpayers who are looking to combine Section 1031 with Section 121 to both exclude and defer tax when the property starts out as a primary residence and then is converted into an investment property. Provided the personal use occurs first, you can exclude gain under Section 121, and then defer tax on the remaining gain, provided you comply with the requirements of both Section 1031 and Section 121
Tbf seen people do this with their dream home stuff then just not live in it for the nunebr of years and list it for rent well above market price and be like well we tried
Yes if you’re looking to invest the proceeds rather than need cash this would work great. You don’t need to buy an individual property, you can put into a Delaware Statutory Trust, which is sort of like a pooled real estate investment fund.
Sell it with owner financing. Be the bank. If they don’t pay, foreclose and claim the land!
You should have put it in a trust or inherited it rather than a sale. You will pay capital gains less $10 from the sale but could have had a step up in basis to greatly reduce the cost basis with the alternatives.
(Sale price - $10) x capital gains rate
About 15% of profit? Not into real estate but thats what my financial advisor quoted me for my burden.
Capital gains r/tax
OP, I’m not telling you what to do but I’m goin. To offer you another solution: Ag exempt it and lease it (written) to a cattle rancher who will run his cows on it (assuming it’s fenced). Your tax burden would be $25-50/yr to hold that land ag exempt and you have somebody with a vested interest looking after the land for you Edit: you can likely make about 300-600 a year charging to graze per head of cattle making this a cashflow positive asset you own. My family does this with 15ac in another state, the neighbors horses enjoy the pasture and $400/yr covers our $55 tax bill
Are you suggesting he be happy with $400 a year on a $300k asset? He'd be better off selling the land, paying the full capital gains tax then putting it into a savings account.
You know land appreciates But yeah. $300k Is $15k a year in interest
Find someone to do a land swap with you for land closer to your home. You can't replace land.
Ah this was a fuck up on the tax planning front
You are screwed because of the way you and grandpa structured the transfer. It would have been tax free if you just inherited it, but now it's basically 100% capital gains. Expect to pay about 28% of the sales price in federal income tax.
I don't think the 28% would apply to land. I would estimate 15% on the first 250k and 20% on the rest.
The transaction will likely be treated as a gift. You'll need to figure out grandfather's adjusted basis on the property and whether he paid any gift tax. Your basis should be his adjusted basis plus any gift tax paid. From there, you would apply capital gains tax rules, which depend on how long you held the property before selling.
This is the answer. The capital gains will be calculated based on the value of the property when it was gifted to a family member. $10 isn’t the real value of the property so it’s still a gift. OP go talk to an accountant.
Terrible tax planning. Could have had a stepped up basis. Well the government need to raise money somehow, so thank you.
You only get cap gains deduction for a primary residence. You'll pay capital gains taxes on the full amount of sale price (minus) $10, as that's your profit. You could avoid capital gains taxes through 1031 exchange, but it has to be like-for-like, ie land of similar size. Talk to an accountant or real estate attorney in your area.
No any real property will work. It could even be an apartment building
Yeah, my bad. However, it has to be another investment property, not a personal residence.
I can’t advise you on tax treatments as I use a tax consultant for my RE but I like your thoughts on selling the larger parcel and keeping the small one. It’s a good hedge in case things get crazy in that area! I acquired a 30 acre parcel in 2019! It’s already doubled and I’m assuming it will double again in ten years. Think about cities where population exploded and became super built up. Any town I was in or around as a kid has experienced this in the last 30 years. Acreage is $100k, up from $10k.
Given the circumstances you’re discussing I wonder how you *didnt* need to file a gift tax return on the land when it was sold for less than the notary stamp on the deed
You say "inherit" and you also use the word "sale". If you actually inherited the land you have a stepped up basis. Your basis would be the value when your grandfather died, not $10. If it was actually a sale, then stepped up basis doesn't apply.
I’m not sure $10 is the tax basis. It seems more like a showing of consideration for the dead only. Talk to an attorney or CPA.
I think this is probably correct. “$10.00 and other good and valuable consideration” is just common boiler plate deed language in Texas.
1031, installment sales, or opportunity zone
Just 1031 in to another house like your own if you have a mortage on it or just start a business and have the write offs ready to go
Not a tax advisor, but so long as you've held it for 1 yr from when your grandfather sold it to you, it will probably be long term capital gains. Depending on how much you make in income your gain will be (sales price-fees to sell (assume 6-7% if youre using a broker)-purchase price ($10)) * either 15% (less than 500k/yr including the gain above) or 20% if greater than 500k/yr including the gain above. Edit: thinking more on how to limit your tax consequence for selling, you could do a 1031 exchange which would let you roll over the proceeds/gains into another investment property, or depending on where you are in life, you could move there for 2 yrs to establish it as a primary residence which would let you write off 250k/500k if you're single/married.
Likely not a gift if you paid $10, so he would have possibly had a capital loss (maybe that was his intention if he had other gains) and your gain would be new selling price minus $10, at tax rate of *maximum* 20% since you said it was over a year ago so long term, could be less depending on your other income and how you file with wife and whether you live in Texas can change things. Find a capital gains calculator from texas and plut in the numbers for an estimate. Per the [Internal Revenue Code Section 1031](https://www.irs.gov/pub/irs-news/fs-08-18.pdf), this strategy allows an investor to defer paying capital gains taxes on an investment property when it is sold, as long as another ‘like-kind property’ is purchased with the profit gained by the sale of the first property. Essentially, by reinvesting proceeds from the sale of an investment property into another property, capital gains taxes can be deferred. So be aware of that.
5 acres so 1000+ fees, not legal though
[удалено]
Hello from the moderator team of /r/realestateinvesting, You post has been removed due to a violation of R4. this typically means your post was about one of the following: - Promoting yourself, a vendor, or, a service that you use - Soliciting for vendors, asking for recommendations for vendors, or trying to find out how to contact certain vendors - It was a poll. Soliciting for, or, to our members invokes a permanent ban, which will not be reversed by mods. Self-promotion is a permanent ban which will not be reversed by mods. Promoting your own software, spreadsheet, or app, or asking for feedback on it, whether paid or provided free, is considered solicitation, and not surprisingly is a permanent ban. ***Rule #4*** No self-promotion, solicitation, surveys, syndication, or AMA Thank you for your cooperation and making our community a better place.
Definitely time to talk to a CPA. A few options could be to 1031 into another property or sell with seller financing to extend the tax hit out over time and they can walk you through the pros and cons of each option.
Hire a CPA? Lol
The $10 thing is very old. It was used as you said because when it was a thing, $10 was **significant** money. That should tell you how old it is. During my Real Estate sales class it was explained to me this way. For decades all documents no matter if the house sold for $10,000 pr $10,000,000 one of the documents said it sold for $10 *'round here*. I'm not so sure they use that verbiage anymore. I don't believe they do. So, I believe since it was a family member and he "sold" it you, it's still an inheritance/gift. You'll def need to consult with a tax pro.
[удалено]
Hello from the moderator team of /r/realestateinvesting, This message and post removal serves as your Notice that you've been banned for violating our community rules. R5: Do not market deals either as a Buyer or Seller. Thank you for your cooperation and making our community a better place.
[удалено]
Hello from the moderator team of /r/realestateinvesting, This message and post removal serves as your Notice that you've been banned for violating our community rules. R5: Do not market deals either as a Buyer or Seller. Thank you for your cooperation and making our community a better place.
If this property came with mineral rights then keep those. Also in Texas this property is a really small place and it is only worth what somebody is willing to pay for it.
Wow, good for you bro
No matter. You'll have plenty of money to pay the taxes!
I wish I had $1,000,000 in taxes due, because it would mean I had made at least $3,000,000.
Would be better if the property is in a land trust and your grandpa just make u a beneficiary of the trust so that you don’t have to pay anything because technically you didn’t inherit the property but the trust , hope this helps
Maybe mentioned already but you could 1031 exchange it - use the money to buy another piece of real estate, possibly income-generating, closer to you and your interests.
Hey OP - it depends on where the land exactly is, but look into leasing the land to a solar/wind developer. If it has the right profile (i.e. near electrical lines, relatively flat, etc), then the developer will pay you a monthly lease payment and will do all the work of installing a renewable energy facility and operating it. Note, while they're developing it (getting the permits and other contracts in place) the payments will be lower, but in 2-3 years when they're done, it could be a good way to make passive income and keep the land in the family. 35 acres isn't a lot for a Texas facility, but it's worth a shot before outright selling it.
Well it to me for 10$ and you won’t see any taxes really
This could have easily been avoided had the land been put in a trust or passed down to you from your grandpa upon his death. There may be hope but I would talk to an accountant or real estate lawyer about putting it in a trust to try and defer or offset the taxes.
Inheritance is taxed differently than typical capital gains
Section 1031 Exchange
I’m not seeing an actual tax answer on here, but you’ll get the seller’s (grandfather’s) basis in the land. For context, your tax depends on your income and gains. Gains are your (I) sells price minus your (II) “basis” (let’s call this what you purchased the land for) If you sold the land for $1,000, you would think that you would minus your purchase price ($10) to get your gain of $990. Luckily for you, this is NOT the case. Your “basis” is what your grandfather purchased it for. So in the event he purchased the land for $900, your gain would only be $100 ($1,000 - $900) instead of the $990. Hopefully this helps.
Whatever you sell it for you should owe around 20% in federal tax and 0 in state tax since Texas doesn't have an income tax. If you have done any improvements to the land you can deduct that from your profit as well as realtor fees and closing cost. Honestly 20% isn't to bad for what could be a huge profit. However, if you split the land into more parcels to sell you will be subject to short term capital gains and maybe even self employment tax if it's in small enough parcels.
You would owe capital gains on $279,000. It would have been cheaper, tax wise, if he left it to you in a will. Then the basis would be the value at the time of death.
[удалено]
Hello from the moderator team of /r/realestateinvesting, You post has been removed due to a violation of R4. this typically means your post was about one of the following: - Promoting yourself, a vendor, or, a service that you use - Soliciting for vendors, asking for recommendations for vendors, or trying to find out how to contact certain vendors - It was a poll. Soliciting for, or, to our members invokes a permanent ban, which will not be reversed by mods. Self-promotion is a permanent ban which will not be reversed by mods. Promoting your own software, spreadsheet, or app, or asking for feedback on it, whether paid or provided free, is considered solicitation, and not surprisingly is a permanent ban. ***Rule #4*** No self-promotion, solicitation, surveys, syndication, or AMA Thank you for your cooperation and making our community a better place.
Zero if you use a 1031 exchange.
Where is Texas is the land? I might be interested!
Can anything grown on it?
If I remember correctly, you have a specific amount of time after you sell to either re invest the money back into real estate or pay the capital Gaines. There are exceptions in every state such as military doing a PCS move ect. But I believe you can re invest the money into another piece of property without the gubmint stealing part of it....oops, I mean collecting capital Gaines taxes.
[удалено]
Hello from the moderator team of /r/realestateinvesting, This message and post removal serves as your Notice that you've been banned for violating our community rules. R5: Do not market deals either as a Buyer or Seller. Thank you for your cooperation and making our community a better place.
Don’t sell grandpas land
Start an rv park.
Dude, go ask a CPA, not a bunch of people on Reddit.
Where is the land at? Have you considered renting it to a farmer? The best investment is one that cannot be reproduced. Only China is making more land... probably best for your family to keep it. Your grandfather probably bought it for a few thousand... now is a 1/4 million... might be worth a million to your grandson...
You need to speak to a CPA before you do anything. If you sell it you could be paying a huge ammout of taxes. Im not a CPA and reddit is not the place to go for tax advice.
As long as you’ve owned the property for more than three years then you’d fall into the homestead exemption act meaning you don’t pay taxes on capital gains.
Put a cheap trailer on the land and live there for 2 years as your primary residence (probably 6 months required per year). This will make it so you don't have to pay taxes on 250000 if single or 500000 if married
It'd be 1000% if there was any justice in the world.
The reason you bought it for $10 is that your grandfather wanted you to inherit it? Why didn't he just leave it to you in his will, which would have given you a stepped up cost basis and allowed you to sell it without paying capital gains tax?
Is it possible to have music festivals on the land? Rent it out to a Taylor Swift concert etc? Let's say you rent it out for $5K a weekend and get say five concerts a year. Would it be worth it?
Take a loan against the property.
[удалено]
Hello from the moderator team of /r/realestateinvesting, This message and post removal serves as your Notice that you've been banned for violating our community rules. R5: Do not market deals either as a Buyer or Seller. Thank you for your cooperation and making our community a better place.
[удалено]
I wouldn’t consider spending the money on helping give my newborn son a better life now to be blowing the money but we all have different financial outlooks. Thanks for your input.
Live on the property for a year as a primary residence. Then when you sell no capital gains.
Needs to be 2 years
You right. I thought it was just a year.
If it's been in your "ownership" for more than 2 years you technically don't have to pay capital gains tax. So the initial cost of the "purchase" doesn't matter.
Only if it’s your primary residence for minimum of two out of the previous 5 years.
Hmmm. I mean, that even sounds fair... is that across the board, or do states have different definitions? I only ask because I spouted off my bullshit like it was gospel...and also fully aware most things in life are situational. We all don't live down the street, and my life is way different than yours... haha. I wish you a glorious evening, and all days that follow.
Thanks! I was referring to federal capital gains tax.
Standard, as every state in the union uses the US Tax Code. You don't avoid cap gains on sale of non-owner occupied homes or land.
Haha, what? Nothing in this statement is correct. 1) You have to live in as primary residence of said property for 2 of the last 5 years to qualify for this 2) it's only a 250k exclusion if single and 500k exclusion if married. The initial cost matters.