How to defer gain on sale of vacant land? - Posted by Mike M.

Posted by Dave T on March 23, 2000 at 23:40:29:

First let’s address the lots you sold to DOT. It appears from the information you gave, that this may fall under section 1033 rules for involuntary conversion. As long as you acquire replacement property (that meets the section 1033 valuation rules) within two years after the conversion, you can defer the capital gains. Your accountant seems to be on target here.

Now let’s consider the vacant lots you quick flip. Section 1031 treatment is not available to you. The IRS treats these lots as your “inventory” (product held primarily for resale to customers) and you as a dealer. If you bought and sold these lots in your own name, your profits are taxed as ordinary income at your current marginal tax rate. All profits are fully taxable in the year of sale.

If your marginal tax rate is higher than 15%, you may want to consider using a C-Corp to buy and sell the lots. The tax rate on the first $50,000 of C-Corp profit is only 15%.

How to defer gain on sale of vacant land? - Posted by Mike M.

Posted by Mike M. on March 23, 2000 at 10:16:08:

This year I have been successful in quick flipping some vacant lots. I am interested in learning how to avoid paying short term capital gains. I know there are 1031 & 1033 exchanges. Is this the proper vehicle? If so, does a third party agent have to handle the proceeds? Is there an easier way?

Is the answer the same for government, eminent domain takings? Last year I sold part of three parcels to the DOT for Right-of Way for a new interstate interchange. An accountant advised me that I just needed to document the government sale and also the subsequent replacement purchase. This was very easy. I’m hoping the same can be done for my lot flips.

Any advise from the tax experts would be appreciated.

Mike M.