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How did you come up with $118,500 in taxes for selling land with a purchase value of $160,000 and sold for $790,000.
This sounds great.


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790k sales price times maximum LT cap gain rate of 15% is $118,500. Simple.

--Peter
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I may be a little confused, jumping in after a long day, but I don't have a clear picture on how the land came in your possession.

If the land was purchased at $160,000 and was gifted to you and your spouse over the course of several years, the net result is that you will have received the giver's basis of $160,000 and the giver's holding period. Therefore, the long-term capital gains would be at most 15% of the gains = 15% of $630,000 (the $790,000 selling price minus the $160,000 purchase price) = $94,500 in long-term capital gains taxes.

If you had, on the other hand, inherited the land, I would think you would have the step-up basis of the land as of the day of evaluation (usually the fair market value as of the day the person died), so the gains would be even less.

There is also a complication of if the land was jointly held and then one of the owners died, leaving half the land to be inherited by the surviving party.

As you can imagine, there can be a lot of devils in the details.

And all this is ignoring the effects of state taxes.
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790k sales price times maximum LT cap gain rate of 15% is $118,500.

Wouldn't that require a tax basis of zero?
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Mark, you're right.
But the OP was vague as to the original acquisition.
Ira quoted the $118,500 as a maximum, I believe.

Bill

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the land was given as a gift over the course of 4 years at a value of $40,000 per year for a total gift value of $160,000.

Does this help? How could Ira have figured the max as $118,500 with this information being provided?
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the land was given as a gift over the course of 4 years at a value of $40,000 per year for a total gift value of $160,000.

If the land was gifted, wouldn't you have the tax basis of the person who gifted you that land? What was that person's tax basis?
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the land was given as a gift over the course of 4 years at a value of $40,000 per year for a total gift value of $160,000.

Does this help? How could Ira have figured the max as $118,500 with this information being provided?


Very simply. The gift value of the property is irrelevant except in the rare case where that value is less than the cost basis of the person making the gift and the recipient sells the property for less than that cost basis.

The relevant amount is the cost basis of the property in the hands of the person giving the gift. Since you haven't provided that information (and I assume you don't have it) I assumed a worst case scenario where the cost basis is $0. This results in the maximum capital gains tax of $118,500. Your circumstances are likely to result in less than that tax bill, but that's the worst.

Ira
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