Many landowners wonder what they will owe in tax after selling. This article covers the general concepts only. Your CPA or tax attorney is the right person to run actual numbers.
Gain Is Sale Price Minus Basis
In general, the taxable gain on a sale is the amount realized minus the adjusted basis. Basis usually starts with what was paid for the land and can be adjusted for certain capital costs. Selling expenses generally reduce the amount realized.
Holding Period Matters
Land held for more than one year before sale generally produces a long-term gain, which is typically taxed at different federal rates than short-term gain. Inherited land has its own basis rules, so heirs should ask their tax professional how it applies.
New Jersey Considerations
New Jersey taxes gains as part of income, and certain sellers have special filing or estimated payment requirements at closing. Sellers who live outside New Jersey should read our article on out-of-state sellers and talk to their closing attorney.
Planning Tools Worth Asking About
Depending on the facts, sellers sometimes discuss a like-kind exchange, an installment sale through seller financing, or timing a sale across tax years. These have strict rules and are not right for everyone.
Keep Your Records
Closing statements from the original purchase, survey and engineering invoices, and records of improvements can help establish basis. Organizing them before listing makes a CPA's job easier.
Get Advice Before You Sign
Tax planning is most useful before a contract is signed. Bring your CPA into the conversation early so you understand the likely outcome before closing.
This article is general educational information, not legal, tax, or engineering advice. Rules vary by municipality and change over time, so confirm details with the appropriate local officials and your own professionals.