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Land And Its Tax Benefits

David Auer CPA

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During the current pandemic, Wall Street has suffered the most raising uncertainty in all other investment options. However, for many years land has proven to be the safest investment during times of economic hardship. Professionals have always considered tax sheltering and land investments to go well together. The area offers a variety of tax protecting options determined by experts. They include the following listed below.


Section 1031

Section 1031 is commonly referred to as a like-kind exchange because it usually involves the transfer of equivalent assets. The land is accepted for exchanges usually done through conventional sales or acquisition models. Land exchanges can also happen through Delaware statutory trusts, which grant multiple investors the option of owning a fraction of a property. This makes them passive investors and raises their portfolio by allowing them to invest in various properties.


Depletion of tax basis

The depletion of a tax basis is customarily used to consider the losses during the production of raw materials. However, there are limits to how you can deplete. If you choose not to consider the depletion rate, you're going to overpay on the tax. It usually affects the tax that firms pay annually.


Step up in basis

It is usual for an asset to be a step up in basis after an owner passes. The benefactors usually receive a cost basis that is equivalent to a fair market price. This means that the purchase price differs after the death of the owner. The reasonable market price received by the benefactors can exceed the purchase price. However, penalties can happen if the sale of the land exceeds the fair market price.


Retirement accounts

These days people have the option to hold land in their retirement account or even their 401k account. For this to be possible, their retirement account needs to be self-directed. It is not possible to invest directly with your 401k account unless you change it to an individual retirement account. The sole purpose of land should be strictly for investment purposes.


Conservation Easements

Conversation easements occur when landowners are willing to donate portions of land to the government or land trust agencies. Landowners regularly donate to protect areas close to their hearts. If the land is considered beneficial to the public, then income tax can be deducted from the donor's federal tax returns.

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