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how to avoid paying tax on the sale of a vacant lot

janine
Level 3

taxpayer owns a principal residence and two vacant lots.  Now retired, taxpayer want to sell one of the two lots to build a vacation home on one of the lots he owns. 

Is there a way to avoid paying the taxes on the sale of one lot, which funds will be used for the building of the vacation home on the other lot?

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9 Replies 9
TaxGuyBill
Level 14

Sure.  The taxpayer can sell the lot for less than his Basis in the lot.   ๐Ÿ˜

If the sold "lot" and/or the "vacation home" is for personal purposes, any gain will be taxable.

janine
Level 3

Thanks for your quick reply.  Yes it is for personal use.  I have been reading the Like kind exchange 1031, but I really do not understand it.  That is why I reached out to the community.

 

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abctax55
Level 15

Read a bit more & you will see that ยง 1031's don't work for personal use property.

Former Chump..umm... AllStar...This message was typed from 6 feet away so you can safely read it immediately.

If a post answers your question, click on *Accept as solution* for future searches
PATAX
Level 9

๐Ÿ‘I also believe you have to get a qualified intermediary for 1031 exchange but this is just my opinion

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janine
Level 3

to PATAX yes, I read about the intermediary.  But taxpayer will not go that route.

 

So it looks like it is going to be a selling transaction taxable to taxpayer.  Thank  you all for your input.

 

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qbteachmt
Level 15

"I have been reading the Like kind exchange 1031, but I really do not understand it. That is why I reached out to the community."

My favorite articles lately have been found on Investopedia:

https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx

 

1031: "Let's sell that marina and buy a shopping center."

Not 1031: "Let's sell a lot, buy a different lot and build a vacation home."

I describe it to my clients as "carrying over the invested value to the new project."

"I also believe you have to get a qualified intermediary for 1031 exchange but this is just my opinion"

That's not just opinion; you cannot touch the funds (needs to be handled as escrow) or DIY.

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janine
Level 3

qbteachmt:   Thanks for your examples.  It helps to put it in layman terms for the taxpayer

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PATAX
Level 9

QB I usually end my statements with the phrase just my opinion... That does not mean what I stated is an opinion of someone else ...Don't get worked up... Just my opinion

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qbteachmt
Level 15

"I usually end my statements with the phrase just my opinion"

I'm just trying to give you credit that it's more than opinion; it's fact.

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"Level Up" is a gaming function, not a real life function.