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Richard
Richard, Lawyer
Category: Real Estate Law
Satisfied Customers: 54020
Experience:  32 years of experience as lawyer in Texas. I'm also a Real Estate developer.
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Have 40 acres of unimproved grass land in South Dakota.

Customer Question

Have 40 acres of unimproved grass land in South Dakota. Nephew currently pays cash rent. He now would like to buy.
The land is in a revocable trust and my wife and I are the trustees.Our biggest concern is tax consequences. What is the best plan to pay the least amount of taxes on the sale?
Submitted: 9 months ago.
Category: Real Estate Law
Expert:  Richard replied 9 months ago.

Good afternoon. My name is ***** ***** I look forward to helping you.

If your primary issue is tax liability, you're better off selling it on the installment basis so that you can prorate the gain over the years as the buyer pays you. The reason this is best to minimize taxes is because the capital gain rate is based upon your marginal tax rate (including the capital gains) and if you sold it and collected the proceeds all in one year, you would be more likely to move into the higher marginal tax brackets.

The tax laws concerning taxation of long term capital gains are as follows:

0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets,
15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax brackets, and
20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.

In addition, starting in 2013, capital gain income became subject to an additional 3.8% Medicare tax for taxpayers with income at or above a certain threshold. This 3.8% Medicare surtax applies to taxpayers with “net investment income” in excess of threshold income amounts of $200,000 for single filers and $250,000 for married couples filing jointly.

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