IRS Taxes That Affect Land
Various land related expenses are treated differently depending on the use of the land and whether the land is improved or unimproved.
These expenses include land rates, association fees, and other land maintenance expenses.
Unimproved land In taxation terms, improved land is land that has a structure on it, such as a building.
A piece of land is considered unimproved if it has no buildings on it, even if you bring in utilities such as water, electricity, fencing, and/or a sewage system.
As long as there is no structures that can be used for economic purposes or personal housing, it is considered unimproved.
For unimproved investment property land, one cannot deduct ongoing expenses.
However, you may add the cost of the various one-off capital expenses that you apply to the land to the value of the land and depreciate it if it is an investment property (as opposed to a personal property).
If it is personal property, you can add the amount of such expenses used to improve the land to the cost of the land, which will increase your cost price of the property if you were to ever sell it.
This way, the capital gain on the property will be lowered and you will consequently pay less in capital gain taxes.
Improved Land Improved land is land that gives you some utility in one form or another.
You may have a personal home on the land or some rental or investment property.
If it is an investment property, then the land rates and land expenses are an allowable business expenses and are therefore, deductible for tax purposes every year that the expenses are incurred.
Most of the land-servicing-expenses are not deductible for personal-use land.
Investment Property Land For investment property, any association and property maintenance expenses are tax deductible.
The details of qualifications of these deductible expenses are contained in the Internal Revenue Code Section 212.
These expenses are a miscellaneous itemized deduction and therefore, follow the rules of itemized deductions.
This means that you must add all itemized expenses and subtract 7.
5% of your Adjusted Gross Income before deduction.
You also cannot deduct this through itemized deductions if you are under the Alternative Minimum Tax (AMT).
However, for those under the AMT and for those who do not itemize deductions, you can still add these expenses to the cost of the land so as to reduce on the capital gains (in case you ever sell the land).
This option is called, capitalizing carrying charges, and is a choice available for those with an investment property.
However, if the investment property is unimproved, you can only capitalize the carrying charges for only one year.
If you opt to capitalize the charges, you will need to attach a statement to your tax return form explaining the expenses that you are capitalizing in the year you choose to do so.
These expenses include land rates, association fees, and other land maintenance expenses.
Unimproved land In taxation terms, improved land is land that has a structure on it, such as a building.
A piece of land is considered unimproved if it has no buildings on it, even if you bring in utilities such as water, electricity, fencing, and/or a sewage system.
As long as there is no structures that can be used for economic purposes or personal housing, it is considered unimproved.
For unimproved investment property land, one cannot deduct ongoing expenses.
However, you may add the cost of the various one-off capital expenses that you apply to the land to the value of the land and depreciate it if it is an investment property (as opposed to a personal property).
If it is personal property, you can add the amount of such expenses used to improve the land to the cost of the land, which will increase your cost price of the property if you were to ever sell it.
This way, the capital gain on the property will be lowered and you will consequently pay less in capital gain taxes.
Improved Land Improved land is land that gives you some utility in one form or another.
You may have a personal home on the land or some rental or investment property.
If it is an investment property, then the land rates and land expenses are an allowable business expenses and are therefore, deductible for tax purposes every year that the expenses are incurred.
Most of the land-servicing-expenses are not deductible for personal-use land.
Investment Property Land For investment property, any association and property maintenance expenses are tax deductible.
The details of qualifications of these deductible expenses are contained in the Internal Revenue Code Section 212.
These expenses are a miscellaneous itemized deduction and therefore, follow the rules of itemized deductions.
This means that you must add all itemized expenses and subtract 7.
5% of your Adjusted Gross Income before deduction.
You also cannot deduct this through itemized deductions if you are under the Alternative Minimum Tax (AMT).
However, for those under the AMT and for those who do not itemize deductions, you can still add these expenses to the cost of the land so as to reduce on the capital gains (in case you ever sell the land).
This option is called, capitalizing carrying charges, and is a choice available for those with an investment property.
However, if the investment property is unimproved, you can only capitalize the carrying charges for only one year.
If you opt to capitalize the charges, you will need to attach a statement to your tax return form explaining the expenses that you are capitalizing in the year you choose to do so.
