I'm Anne. I've been preparing taxes for 27 years and I have a different answer for you.
Any time you sell something, such as your land, there is a form that goes to the IRS listing the sale price only. What the IRS doesn't know is what you paid for the land, so they would have assessed taxes and penalties based on the gross sales $ amount reported to them.
So when you sell something, land, stocks, bonds,etc and the IRS receives the information on the sales price, even if the situation was as described above and you wouldn't owe taxes, you would still have been required to file the tax return, proving to the IRS that you didn't owe any tax on the sale.
However, while its true that you can claim up to $250,000 ($500.000 if filing jointly and you both meet the qualifications) on the sale of your principle residence, the sale of vacant land does not qualify for this exemption. Please see below, under heading (3) Vacant land at the following:
As for taxes, you would owe 20% tax on the gain. See below:
Gain is the difference between the sales price and the $ amount of your cost basis in the land. It would not include the property taxes you paid every year, but it would include any improvements you made to the land, such as landscaping, fences, etc, less cost of sale.
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