Land Sale

[Thad]

Comrades, I am about to embarked upon my first tax return involving land sale. I am not 100 certain about the forms that should be utilized. To my knowledge, it was just vacant land without any dwelling sitting on it. But, in case that when the client does come to the tax office, do I put the land sale on a Sch-D, and if it is rental property, shouldn't it go on a 4797? Any guidance regarding this land sale will be most gracious. Thanks.

[Koss]

Vacant Land

If it was vacant land, it probably wasn't rental property.

In theory, it could be. It might have been rented as farmland, but then it's not considered vacant land. It could have been rented for some sort of storage (e.g., someone needs a place to park their boat or RV). Or maybe it was rented to a bunch of hippies for a music festival...

If it was vacant land, then it was probably simply held as an investment.

So it would go on Schedule D, and Form 4797 would not be used.

The easy part is: No depreciation!

There's other possibilities. If your client is a professional real estate dealer, or a builder or developer, then the vacant land might have been used in a trade or business, and then you would need Form 4797. Other complex issues could arise if he was harvesting timber, or leasing it to someone who was grazing cattle, etc.

That's all pretty fringe stuff. It was probably just an investment.

It may be one of the easiest entries on Schedule D you ever have.

BMK

[Burke]

There's other possibilities. If your client is a professional real estate dealer, or a builder or developer, then the vacant land might have been used in a trade or business, and then you would need Form 4797. BMK

Here's another complication. If the professional real estate dealer bought this land and subdivided it into lots for resale, then the sale is treated not as a capital gain but ordinary income, reportable on Sche C, or 1065 and subject to SE tax. (There are some exceptions under IRC 1237, but it involves a 5-yr holding period.)

[DaveO]

Another potential complication is that if the taxpayer held it as investment property he may have elected to capitalize carrying costs such as taxes, insurance and interest.

[Burke]

Don't you just love our tax code?