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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I just sold a piece of vacant land in Adams County, Wisconsin.

Customer Question

I just sold a piece of vacant land in Adams County, Wisconsin. Sale price was $9,000. Net, after all was said and done, was roughly $7,100. The county real estate tax statement for the last few years has the assessed value between $19,000 and 15,500. I have communications (emails) between myself and the real estate agent indicating that the market in the area is 'dead' and the $9,000 was the best was going to do for some time.
Can I take a loss on my 2013 Income tax?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to Just Answer!
You may deduct a loss on your tax return - that is not an issue as long as the vacant land was your investment and not personal use property.
The issue is HOW the loss is determined - and generally - you may not use assessed or appraised value to calculate the loss.
To determine the loss - you need to have your basis.
If the property was purchased - the basis is your purchase price. If the property was inherited - the basis in most situations - the fair market value when the decedent passed away.
The basis should be adjusted by purchase expenses, sale expenses, etc.
And the capital gain or loss is calculated as (selling price ) MINUS (adjusted basis).

Lev :

However - when the assessed or appraised value of the property is going up or down - neither gain nor loss is recognized.
We only recognize the gain or the loss when the property is sold or otherwise disposed.
For instance - when your land was assessed at $19,000 - you did not realize any taxable income - thus - we may not calculate the loss based on that amount unless that was your purchase price (basis).
Sorry if you expected differently.

Lev :

So far - to properly calculate your taxable gain or loss - we need to know (1) your original purchase price (basis) and (2) adjustments to your basis - including current selling expenses, Realtor fees, etc.

Lev :

Let me know if you need any help with reporting.

Customer :

Let's say my dad purchased the property 40 years ago for $5000. Property was in joint tenancy with mom. Dad died 26 years ago. The assessed tax value on the date of his death was $4000. Five years later., mom re-deeded to property to me (gifted, I think) and the assessed value was $10,000. Now, 2013, the assessed tax value is $19,000. I sold the property yesterday, net $7,100. What is my basis?

Lev :

Let's examine the sequence of events.
1. When your father purchase the property - the purchase price becomes the basis - $5000.
2. When your father passed away - your mother inherited a half of the property as she already owned another half. So we need to determine what was the fair market value at that time. If the fair market value was equal to the assessed value (usually it is higher) then your mother's basis is $2500 (of half she owned) plus $2000 (on half she inherited) = $4500.
2. when the property is gifted - your basis is the lesser of the donor's basis ($4500 in our example) and the fair market value of the property at the time of gifting ($10,000) - so your basis is $4500.
3. Assuming you had selling expenses of $1900 - that will be added to your basis - and your adjusted basis would be $6400.
Please be aware that is a raw estimate to illustrate your situation.

Customer :

I understand so far. One last thing. If 3 years ago, the state of Wisconsin (Dept. of Interior or some such thing) created a 'Fire Wise Program' that required me to cut down all dead trees on the property and clear all dead debris from the ground with a $10,000 penalty or some such absurd fine, and I had to travel up to the property for the last 3 year to cut, drag and haul to prove progress on this program to avoid a fine, is the cost of this added to my basis?

Lev :

Yes - improvements to the vacant land are added to the basis. You may also add your travel expenses assuming you keep a good record of your trips. You will add a cost of tools and and payments to contractors if any.

Expert:  Lev replied 1 year ago.
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Expert:  Lev replied 1 year ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and posting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

Yes - improvements to the vacant land are added to the basis. You may also add your travel expenses assuming you keep a good record of your trips. You will add a cost of tools and and payments to contractors if any.

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