Capital Gains Basics
When you sell land for more than your purchase price, the IRS treats the profit as capital gains income. Your taxable gain = sales price – (purchase price + improvements + selling costs).
Short-Term vs Long-Term Gains
Short-term gains (owned < 1 year) are taxed as ordinary income. Long-term gains (owned > 1 year) get lower rates, usually 0%, 15%, or 20% depending on your income bracket.
Primary Residence Exclusion
If the land has your primary home, you may qualify for the IRS $250k/$500k exclusion (single/married). Vacant land without a home doesn’t qualify, unless sold with your residence.
1031 Exchanges
A 1031 exchange lets you defer taxes by rolling sale proceeds into another investment property. Rules include:
- 45 days to identify new property
- 180 days to close
- Must use a qualified intermediary
Installment Sales
You can spread taxes by structuring an installment sale. Instead of one lump sum, you receive payments over years, reporting gain gradually.
Deductions & Expenses
You can reduce taxable gain with certain expenses:
- Real estate commissions
- Attorney & title fees
- Surveys, appraisals
- Improvements made before sale
North Carolina State Taxes
NC taxes capital gains as regular income at a flat 4.5% (2025 rate). Always account for state tax when estimating net proceeds.
Tax-Saving Strategies
- Sell in a year with lower income to reduce your tax bracket.
- Use a 1031 exchange to defer gains.
- Consider gifting land to family or charity for deductions.
- Track all improvements and expenses to increase your cost basis.
FAQs
Do I pay taxes if I inherited land?
Inherited land usually gets a step-up in basis, meaning your taxable gain is based on value at time of inheritance, not original purchase price.
Can I avoid paying any tax?
Not completely, but exemptions (primary home), 1031 exchanges, and deductions can reduce or defer the tax burden.
Should I talk to a CPA?
Yes—this guide is for education only. Always consult a CPA or tax professional before selling.