-- Answers to Questions About Real Estate Law
Money and real estate news you can use everyday

Real Estate Lawyer
Question of the Week
Tip of the Week
Recommended Books
Contact Sam

Capital Gains Tax Question


Ask the Real Estate Lawyer: Real Estate Law Q&A

By Ilyce R. Glink and Samuel J. Tamkin

Summary: Can I defer capital gains? A reader hopes to minimize his capital gains tax after selling vacant land and turns to Ilyce Glink and Samuel Tamkin for some good real estate advice.

Q: In 1992 we bought a second home, a mountain cabin, for $58,000 and have put in about $11,000 in improvements. We are currently adding on to our mountain cabin to double its size.
(article continues below useful links)

In 1995 we bought a different piece of vacant land for $22,000 that is now worth over $81,000. We are going to trade this vacant piece of land to our builder plus an additional $3,000 for his work on our cabin.

Can we roll the capital gain from the sale of the vacant land into the value of the improvements on our mountain cabin and defer capital gains until we sell our mountain cabin sometime in the next 20 years?

A: The easy answer is that upon your transfer of the title to the vacant land to the builder, you will have to pay a tax. The good news is that the tax should only be a capital gains tax at a rate of no more than fifteen percent.

You generally have two choices when you sell a piece of vacant land that has appreciated in value: you can pay tax on the sale or you can defer the gain by using a certain type of trust allowed under the tax code to defer gains on the sale of property. Most people call this type of trust a “Starker Trust” or a 1031 Exchange Trust.

In a 1031 Exchange Trust, you sell a property and place the money from the sale in the trust until you buy a replacement property. While the rules can be complicated, the basic rule is that the replacement property must be of equal or greater value and must be done within very specific dates.

In your case, you already own the property that you want to put the funds into from the sale of the vacant land. Unfortunately, you would not be eligible for the benefits of a 1031 Exchange Trust.

You should probably talk to a good tax accountant with extensive knowledge on real estate exchanges and sales to help you work through your issues.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Ilyce R. Glink’s latest book is The REAL U Guide to Bank Accounts and Credit Cards. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website




RSS Feeds

RSS 0.91 Feed
RSS 1.0 Feed
RSS 2.0 Feed

Home Buying   Using Attorneys to Buy a Home - Earnest Money - Quitclaim Deeds - Easements - Seller Misreprensation - New Construction - Buying with Partners - Home Inspections - Seller Problems - Agent Issues
Home Selling    Using Attorneys to Sell a Home - Seller Disclosure laws - Title Problems - Buyer Problems - Real Estate Agent Issues - Tax Considerations
Home Ownership   Neighbor Problems - Seller Misrepresentation And Fraud Issues - Problems In a Condominium Development - Problems Around The House - New Construction Issues - Subdividing Land
Home Renovation   Architect Issues - Contractor Issues - Problems With Contractors - Inspection Issues - Certificate Of Occupancy - Municipal Inspections - Punch List Issues - Financing Issues - Installment Contracts
Real Estate  
Loan Application Problems - Refinancing Issues - Paying Off An Old Loan - Credit Problems - Seller Recommended Lender - Prepaying A Loan - Prepayment Penalties - Predatory Lenders
1031 Exchanges - Financing Investment Properties - Landlord and Tenant Issues - Partnership and Company Considerations - Tax Considerations - Subdividing Land
Contact Us | Sitemap | Terms of Use | Copyright ©2001-2005. ThinkGlink Inc. All rights reserved.
Reproduction of material from any pages without written permission is strictly prohibited.
Site design by Walker Sands Communications