How to Calculate Taxes on the Sale of Inherited Land
The sale of inherited land is subject to different tax laws than land purchased personally and these taxes can be calculated by finding out the market price of the land, which can be done with the help of a lawyer.
Once you inherit land you should find the fair market value of it. Alternatively, the person who has been chosen as executor of the estate will choose a date and this will serve as the basis in the property that you will use in the sale of inherited land that you have received. This price will be used as the baseline amount for the property from which you will deduct any additional prices for repairs and the actual sale price.
Find out what ownership numbers are in the sale of inherited land
- You should add any additional costs that you accumulated on the land while it was in your possession. When you make the decision of the sale of inherited land you may want to boost its price by making some adjustments. These can include landscaping, adding buildings or renovating sections of the land or buildings. Add this number to the market price of the land and this number represents your adjusted basis in the property.
- You will then have to determine what the price of sale for the land is and sell it. Once you have done this two things need to happen for taxes to be paid on the land. The first is that you
recognise the sale when it happens and then use the money you receive to pay taxes.
- The next thing that has to happen is that you subtract the adjusted basis figure that you worked out from the amount received in the sale of the land, also known as the "amount realised." The value may be positive or negative. If it is positive then it is recognised as a gain in the long-term and it is recognised as a long-term loss if the number is negative.
- The next step is something known as "netting" where you will have to add together all of your short-term capital gains and losses from any assets that are applicable, such as property and investments you have made. You then add together all the long-term gains and losses which includes the sale price of the inherited land.
- You are left with a net short-term gain if the total gains are higher or a net short term loss if the losses exceed them. Short-term capital losses and gains is applicable to property you had in you possession less than a year while long-term refers to property held for over a year and inherited property.
- You now take the net losses from the gains, if possible. You report that number and pay taxes on it. As an example, if you had 10,000 in net short-term gains and 6,000 in short-term losses then you are left with a recognisable net short-term gain of 4,000.