15 Ways to Make Money with Vacant Land - Redefy Real Estate
Vacant land has long been viewed by many as an attractive investment. You usually earn no income from vacant land, but you do have expenses for such items as property tax, interest and other carrying costs. Can you deduct these costs? First of all, for tax purposes there are two types of people who own vacant land: Real estate dealers are in the business of buying and selling land.
A dealer buys property and resells it, usually at a price higher than the purchase price, and normally after only a short holding period. A good example is a subdivider who buys large tracts of vacant land, divides them into smaller lots, and then resells the lots piecemeal.
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Numerous and continuous sales over an extended time period are the hallmark of a real estate dealer. Real estate dealers are entitled to much the same deductions as any other business owner.
They can deduct all the expenses of owning the vacant land they buy and sell, including interest, taxes and other carrying costs. If a sole proprietor, these are deducted on IRS Schedule C. On the downside, all the profits real estate dealers earn from their business are taxed at ordinary income rates instead of capital gains rates. Moreover, they must pay Social Security and Medicare taxes on their net self-employment income, as well as income tax. Also, real estate dealers are not allowed to take depreciation deductions.
So if land has structures on it, their cost cannot be deducted. A person who purchases real estate as an investment is not in the business of buying and selling vacant land on a continuous and extended basis. Rather, he or she purchases land and usually holds on to it for some time in the hope that it will how to profit from vacant land in value. Since how to profit from vacant land investor is not engaged in a business, he or she is not entitled to business deductions and does not file Schedule C.
However, many investment expenses are deductible as personal itemized deductions on Schedule A. These expenses are an ordinary tax deduction that results in tax benefits at your regular income tax rate, which can be as high as Any interest an investor pays on money borrowed to purchase vacant land is investment interest that can be deducted only as an itemized personal deduction.
Any excess is carried over to future years. You determine the amount of your net investment income by subtracting your investment expenses other than interest expenses from your investment income. An investor can also deduct property taxes paid on vacant land as a personal itemized deduction on Schedule A. This deduction is not limited to the amount of net investment income.
Any other carrying costs such as legal and accounting fees, insurance, and travel expense are also deductible on Schedule A. However, they are deductible only as miscellaneous itemized deductions. This will reduce any taxable profit you earn when you sell the palms food market woodstock. You can elect to capitalize all your costs, or capitalize some and not others — for example, you could capitalize interest but not taxes.
If you wish, you can make the election some years you own the property, and not make it in others. Simply enter the email address stock market astrology rediff used to create your account and click "Reset Password". You will receive additional instructions via email. Technology Agent Marketing More Brokerage Tech Reviews Special Reports Listings MLS Mortgage Video Webinars Rentals Regulations International.
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