Dear Jan: We own a piece of land in this area. We are thinking of selling it. Can we buy another piece of land in another area and not have to pay income taxes on it?
Dear PM: Buying and selling land can have a different outcome tax-wise than selling homes.
Land can be considered investment property. Therefore, if you buy “like kind” property, you can do a 1031 exchange, which defers the taxes to the new purchase. Now, here is the great part. To be “like kind” you do NOT have to buy another piece of land, you can buy ANY other investment property you want to, like a rental home, a duplex, commercial property, etc.
There is a catch. When you make the sale, you, the taxpayer, CAN NOT touch the money so you need to use a 1031 Tax Exchange Facilitator, which can be an attorney or a person who does this for a living, to make the exchange. There are rules to play by … but it can be worth it, saving you possibly thousands of dollars. Your local real estate broker should have a great referral for you.
Let’s say you sell an investment house and then buy a home in, say, Arizona. If you rent that home out for a certain period of time, and then move into it for your personal residence later, you can possibly avoid taxes on the gain. Worth looking into! Good luck!
— Jan Zufelt is an agent with John L. Scott Real Estate in Kingston. Contact her at email@example.com.