Created on Sunday, July 26, 2015
Updated on Monday, February 26, 2018
by Land Century
The tax advantages come with criteria. Number one, do not put a dwelling or make significant improvements on your raw land with the intent to sell. The IRS has a word for people that do that, and its called a real estate dealer. Why do you care what they call you, because you will pay far higher taxes on it?
The second point is you only pay taxes on the profits gained from the sale of the property and not the total price. This can add up to significant savings over time. Land, unlike houses, does not depreciate. Raw land just sits there building itself up with little or no help.
Long Term Investments
The taxes on long-term investments is about half of what you pay for the short term. Long term is defined by the IRS as over a year. Then you can parcel out your raw land to sell it and keep your tax rate lower. Selling pieces or plots of land with a payment arrangement is good for both parties. The buyers can acquire land they may not otherwise be able to afford, and you maintain a lower tax rating and still make a profit.
Take advantage of LLC or a partnership corporation. It not only guarantees the protection against personal liabilities for business it changes how you are taxed. LLC members are taxed through the company, and all members report their profits and losses on their taxes.
Liability is limited but not eliminated; wrongful or unlawful acts are not protected. The profit sharing is decided amongst the members and written out in percentages. The only disadvantage is if one member leaves the company is dissolved. You should include this possibility when you first set up the guidelines and address this problem and solution then.
A few more deductions like this one, the interest on your net investment income for the year is deductible, and interest on the total investment is added to the next year. Additionally you can deduct the property taxes on the raw land and the expenses like fees for attorneys or permits. These can be limited to 2 or 3 percent, and you must itemize to deduct them.
Getting a Bank Loan
This is the most complicated way to purchase the land you want. You must have top of the line credit and income that exceeds your current expenses, the price of the land and the interests for the loan the bank is giving you.
Your other and best options are owner financing or a home equity loan if that is possible. Dont let the details discourage you. Just determine your budget and give us a call, we welcome the chance to help you locate and purchase the land you want for your familys investment.
Business Only Bits about Raw Land Purchases
Some people may think buying land is all about looking at it and signing the contract. It is far more involved than that, and this is your map to buying safely. Every land sale company should offer this information for you or the resources to find the answers to your questions. We make a point of it.
The information below should always be included when possible. We include websites to access further data if needed.
Whether or not it is in a flood zone, if a septic system can be used and what kind of well you will need may have to be decided by soil test and local county restrictions. For this reason there are usually two websites for you to explore those issues and more.
There is an article that can explain the types of deeds used and what you should know about them. It is important to read that before you buy. The listing id and parcel numbers will be needed to access any specifics about the property itself. The zoning will tell you if it can be used commercially or as a residential home site. If you plan something special call the planning and zoning department at city hall to conclude if its acceptable. Legal road access is a huge expense if it is not already included, so check this out ahead of time.
The utilities may only say electricity is accessible. That is because not all rural areas can get electric connections to their homes. Water is often well water and sewage can be city or a modern septic system, but it has to pass a perc test. Ask if one has been done so you dont have to pay for another one, and what the results were. It is all about the soils ability to drain.
You also want to know if this was a dump site, and if a pack test has been done that deems it a potential building site. The environmental safety of the land and the mineral rights must be questioned as well. Taxes are always important as are the fees and interest rates. That combination will give you an idea if this is a money making opportunity or not. The local work, education and recreational data will be a selling point if you plan to build and rent or resell at some time in the future.
We welcome the opportunity to walk you through each step of your new adventure in land ownership, we are just a click away.