Hello everyone. We are in the process of developing a few commercial acres. We have two buildings going up that will be offered for sale or lease. This is not our main business. If we were to find a buyer for the properties, without rolling over the gains into another property is there a way to avoid a portion of the property gains tax? Is there a way to purchase equipment, vehicles etc. and write a portion of the cost off? Any help would be appreciated.
Many folks don't understand their basis which the feds allow. Take purchase price (look on tax assessor site building only, not land) 100k, then take improvements (long term ones roof, flooring, etc) lets say 100k. (Assuming you know that expenses and property tax if it's in a LLC, S Corp etc is a write off for that year) you take the 200k (long term improvements and purchase price) and depreciate it over the MACRS table 27.5 years? $7,272 pr year. Lets say you sell this property after 10 years for 200k. (you bought if for 100k) $7,272 per year depreciation $72,200 depreciation so 200k building cost and long term improvements minus the cost you depreciated. $172,200....you have a $27,800 gain.
So save all your receipts in building, also if you stay at the property and make repairs that day, its all a write off
You purchase land...100k no write offs (land only pr assessor site) Building costs $200 pr sq ft. $200k receipts for 1000 sq ft. sell for 400k = 100k capital gains held for 5 years (200k Receipts $7,272 depreciation pr year $36,360 depreciation) 200k - 36,360 = 163,640 minus purchase price 100k = 63,640 capital gains...which is better than 100k. With your rent roll for those 5 years and property tax write off 10k plus or minus you should be getting pretty close to a $0 tax burden
If you are buying undeveloped land and developing it - the IRS views this as inventory. As such - you are not eligible to do a 1031 exchange or installment sale to defer tax. 1031 exchange and installment sales are methods to defer or lessen the immediate impact of taxes at year of sale.
If you are in the business of developing land and you need to buy equipment to improve the land - then yes you may be able to factor in the equipment in your gain calculation.
If you need a vehicle to transport equipment or to meet with contractors - the vehicle may also be factored in the gain calculation.
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