Capital Gains On Subdivided Land...Please Help!
I am debating whether to purchase a 30 acre parcel of waterfront land for $400,000.
The land has been recorded as two lots, roughly equal in size and value (this was done with my awareness and encouragement).
If I turn around and sell one of the two newly created lots for 300,000. What are my capital gains implications?
Meaning, do I have to wait until I make over the $400,000 mark to pay capital gains, or is each property valued at $200,000 and thus, I would owe capital gains on the $100,000 that I would make on the sale of the first lot?
Obviously, if I am able to wait until I make over $400,000, my goal would be to sell the first lot, and then wait a year to sell the 2nd lot to get long-term capital gains.
Any advice anyone has would be most appreciated. If it matters, this is in Virginia and I am using a real estate agent.
Thanks,
AndrewDC
AndrewDC,
I think you answered you own question when you said they are roughly equal in size and value. That would lead me to believe that your purchase was of two pieces of land that are worth $200K each. Sale of one for $300k would result in $100k in gain.
On the surface, capitolinvestor is correct, each lot is assumed to cost you $200,00.
However, if you are in control of this deal, you should be able to purchase the one you expect to sell first for $300,000, and the other for $100,000.
If you can do this, any taxes are deferred until you sell the second lot. But your atty or CPA better advise you on the front end, before the purchase.
Thanks very much for your replies. I think that you are right capital investor. When I first saw the property it was one 30 acre lot. The developer, when surveying the entire property, had it surveyed as two lots, which I supported so I would not have had to rehire a new surveyor after purchase. Also I do not have to deal with the deeding of the two separate lots. They have both been perked and deeded as individual lots but I am only purchasing it as one lot. I am seeing the deeds and plots for the first time today so may have more information later today.
Thanks,
AndrewDC
If there are two deeds, then you will be purchasing two separate lots. Two separate deeds will be recorded.
One thing that I was going to ask is..do you have a LLC setup for your purchase? I am not a CPA or lawyer, but I believe you can reduce your capital gains tax and even defer for a period of time. I would research this too, if you have not already.