Property Q&A in Chicago>Question Details

Ann, Both Buyer and Seller in Chicago, IL

selling vacant land at profit. Will i pay capital gains tax if i buy down present mortgage?

Asked by Ann, Chicago, IL Thu Oct 14, 2010

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You can look into doing a 1031 exchange with a "boot". That is, and I am no expert, get cash out of the sale proceeds and use it to pay down or off your present mortgage, then put the rest into a 1031 exchange. That way you will not pay capital gains on all the proceeds. You will then put the rest into a purchase of investment property or what they refer to as "like kind" property in-order to defer the gains. Remember you are just deferring the gains. Call and talk to some at an exchange company, liker Starker for one, there are many but talk to a reputable company and one that has been in business for a long while. Title people can also help you with answering some of your general questions about the process as they do this all the time, but they can not answer the bigger question, that is what is best for you and your situation, that of course needs the expertise of an accountant or attorney who deals with this sort of thing. Good Luck
0 votes Thank Flag Link Sat Oct 16, 2010
I would advise you to speak to an accountant or tax attorney as capital gains tax laws change yearly and certainly can change next year depending on how the present administration handles this highly debated topic.

To answer your question, I believe that buying down your mortgage will not affect your capital gains as the mortgage amount is irrelevant for tax purposes. Your CAPITAL GAINS are factored as follows...Current Sales Price - Cost Basis, which is Purchase Price (when you bought) OR market value at time when inherited (if inherited). I will not tackle dedcutions here as those are a separate entity.

As mentioned in previous answer, a 1031 "like kind" exchange would allow you to defer paying taxes on any capital gains that you reinvest.
0 votes Thank Flag Link Thu Oct 14, 2010

Let me understand your question. First it appears you own vacant land that is secured by a mortgage and that you want to sell it to someone else. I am assuming you will need to payoff the mortgage to convey clear title to a new buyer. When you purchased the property I am also assuming you put some kind of downpayment along with interest payments. Both of these can be used as deductions before you pay any capital gains taxes. You can not depreciate Vacant Land.
0 votes Thank Flag Link Thu Oct 14, 2010
If you have a profit after deducting all allowed costs, yes, unless you do a 1031 Exchange. Then you can defer any capital gains tax potentially indefinately. In doing a 1031 exchange you can buy just about anything......condo, 2 flat, long as it is used as an investment property.....for a period of time.
In this market if you can find a buyer for vacant land you are in great shape!!

0 votes Thank Flag Link Thu Oct 14, 2010
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