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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Are capital gains taxes assessed to the sale of unimproved

Resolved Question:

Are capital gains taxes assessed to the sale of unimproved property. I have two acres of rural Ohio riverfront property that I have just sold. I purchased it in 1975.
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
Hello IndiansFan,

Capital gains tax is assessed on the sale of any property, regardless of whether or not it was improved or unimproved.

Any gain you had from the sale would be treated as a long term capital gain, and that applicable tax rate is currently capped at 15%. Your gain is figured by taking the sales price less your basis, which is what you purchased it for in 1975. That gain is then subject to the long term capital gains tax. The transaction is reported on Schedule D in the year of the sale.

If this was helpfu please press the Accept button. Positive feedback is also appreciated.

Thank you IndiansFan.

Customer: replied 5 years ago.
To avoid the capital gains, can I use the profit from the sale to pay down the morgage on my rental property?
Expert:  Merlo replied 5 years ago.
Hello again IndiansFan,

There really is no way to completely "avoid" th capital gains tax. There are ways that you can "defer" the tax, and pay it at a later time, but using the proceeds to pay down your rental property mortgage would not be one of them.

The only way to defer capital gains tax on investment property is when you participate in what is called a 1031 Exchange. With a 1031 Exchange, you use the proceeds from the sale of one investment property to purchase another "like kind" property. The taxes on the sale then do not become due until such time as you sell that replacement property.

The property you purchase must be "like kind", meaning you would have to purchase another land lot. You could not purchase a business or other type of investment. When you participate in a 1031 exchange, there are strict rules that must be followed. An intermediary must be used to handle the money from both transactions. The replacement property must be identified prior to the sale of the first property, and the replacement property must be purchased within 60 days of the first sale.

That is the only way to defer taxes on the capital gains you would have from the sale of this property.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you IndiansFan.

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 8 other Tax Specialists are ready to help you

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