Capital gains tax when you sell land

Do you owe tax when you sell vacant land?

You owe federal tax on a vacant land sale only if you sell it for more than your adjusted basis. If you sell for less, you have a loss. Land held for investment is usually a capital asset.

Most sales are reported on Form 8949, with totals on Schedule D of Form 1040, per IRS Topic 409. The closing agent usually reports the sale to the IRS on Form 1099-S. Your state may also tax the gain, so check your state revenue department.

How do you figure the gain on a land sale?

The gain on a land sale is the amount you realize, minus selling expenses, minus your adjusted basis. IRS Publication 544 shows selling expenses subtracted this way.

For land you bought, basis is usually your cost plus certain settlement costs. IRS Publication 551 lists owner's title insurance, surveys, recording fees, transfer taxes and legal fees for the title search and deed, among others.

Example with round numbers: you paid $20,000 in 2004 plus $1,000 of closing costs. You sell for $90,000 and pay $4,000 to sell. Your gain is $90,000 minus $4,000 minus $21,000, which is $65,000.

What are the 2026 capital gains tax rates?

Long-term gains on land held more than one year are taxed at 0, 15 or 20 percent, based on taxable income. Gains on land held one year or less are short-term and taxed as ordinary income, per IRS Topic 409.

For 2026, IRS Revenue Procedure 2025-32 sets the 0 percent rate for taxable income up to $49,450 for single filers and $98,900 for joint filers. The 15 percent rate applies up to $545,500 single and $613,700 joint. Above those amounts, the rate is 20 percent.

Higher earners may also owe the 3.8 percent net investment income tax. IRS Topic 559 applies it above modified adjusted gross income of $200,000 for single filers and $250,000 for joint filers.

How is inherited land taxed when you sell it?

Inherited land is always treated as long-term, no matter how soon you sell it. IRS Publication 544 says you are considered to have held inherited property longer than 1 year. The rule comes from Internal Revenue Code section 1223(9).

The basis of inherited land is generally its fair market value on the date of death, per IRS Publication 551. Some estates use an alternate valuation date. If you sell near that value, the gain is small. Get the date-of-death value in writing, such as an appraisal.

If the estate sent you Schedule A of Form 8971, your basis must be consistent with the final estate tax value. Our pages on inherited land and probate land cover the sale itself.

How is land you received as a gift taxed?

Land you received as a gift usually keeps the giver's basis, so the giver's old purchase price sets your gain. IRS Publication 551 has special rules when the land was worth less than the giver's basis at the time of the gift. Our guide to selling land to a family member covers gifts and part-gift sales.

Does the home sale exclusion cover land?

The home sale exclusion in section 121 does not cover most vacant land. Treasury Regulation 1.121-1(b)(3) allows it only for vacant land next to your main home that you used as part of the home.

You must also sell the home itself in a qualifying sale within 2 years before or after the land sale. A separate tract you never lived on does not qualify.

Can subdividing land turn the gain into ordinary income?

Subdividing land into lots to sell can turn the gain into ordinary income. IRS Publication 544 says the gain from subdividing a tract into lots for sale is normally ordinary income. Section 1237 can give capital gain treatment on part of it if you meet its conditions.

Property held mainly for sale to customers is not a capital asset. If you plan to split and sell lots, talk to a CPA before you start. Our guide on how to subdivide land covers the approval side.

Can you defer the tax on a land sale?

You can defer tax on a land sale with a 1031 exchange or spread it with an installment sale. A section 1031 like-kind exchange defers gain when you swap real property held for business or investment for other such property.

The 1031 deadlines are strict. You identify the replacement in writing within 45 days and receive it within 180 days, or by your tax return due date if earlier. A qualified intermediary holds the money, and you report the exchange on Form 8824.

An installment sale lets you report gain as payments arrive, using Form 6252, per IRS Topic 705. Our guide on owner financing a land sale covers the risks of carrying a note.

Does a cash sale change your tax?

A cash sale does not change the tax rules, but it puts the whole gain in one tax year. Ask a CPA to compare that with an installment sale before you sign. Bring your purchase closing statement or date-of-death value.

Liberty Acres is a family-owned land company. We buy land anywhere in the US, in any condition, and close through a title company. We pay back taxes and all closing costs, with no agents and no commissions. We can close in as little as 14 days. Most sales close within a few weeks to a few months, once the title work is done. Our net proceeds calculator shows what you receive before tax.

Common questions