LandInvestors.com Forums **Ask A Question** 1031 exchange with Raw land and other strategies to reduce taxes

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    Luke Harris
    Participant
    Post count: 146

    I have been looking into ways to reduce taxes for my income from the land business. I had a meeting with my accountant a few days ago, and he told me that my income would have to be classified as regular income, to have it classified as capital gains I would have to set the trend in my business of holding properties long term. He said capital gains is 0% tax, regular income is about 30%.

    How have you all reduced your tax burden?

    1. Does a 1031 exchange work with raw land?
    2. Are any of you familiar with Damien Lupo’s QRP, or using a self directed IRA?
    3. Is there another way to classify income from this business as capital gains?
    4. Do you guys know of any other strategies to reduce taxes for this business?

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  • Adam Fenner
    Participant
    Post count: 28

    Luke,

    I’m curious to how our experienced members are dealing with this issue. I am an accountant, but tax is not my area of expertise. Based upon this business activity I don’t see a way of getting around being considered a dealer. Unless you always hold your inventory for a year before selling, which isn’t within the business model.

    1. Section 1031 gains only differ taxable gains, eventually you will pay the taxes on them. Plus they are complicated to keep calculate depending on the nature of them. If you don’t have your accountant helping you through the first couple I wouldn’t bother.
    2. Self Directed IRA, may be good if you want to set some of the income aside, but you will pay taxes on it later at your reduced tax rate when you retire. But that is retirement money, or educational depending on how it is structured.
    3. Capital Gains is a tricky one, like I said above, hold it for a year.
    4. The one thought I had was that you can offset your revenue by the cost of goods (original cost of inventory) and deduct your business expenses. You will be taxed at the normal rate, which does increase depending on your Adjusted Gross Income, 40% being near the top. Here is a link with the tax brackets http://taxfoundation.org/article/2016-tax-brackets

    I’m curious to what others have to say about all this.

    Milan
    Participant
    Post count: 520

    This are great questions. I would like to know the answers to them too.

    Do you have a strategy to reduce your tax bill flipping land? Share it!

    Thanks

    David Dempsey
    Participant
    Post count: 28
    Pro

    Luke’s question is my question.

    I signed papers today on sale of a nice sized deal and would love to hang on to as much of it as possible. In my eyes this is worthy of a very open discussion form all quarters, preceded by, “I’m not offering advice and am not a tax professional. However, this is my experience.”

    Milan
    Participant
    Post count: 520

    Yes. Agreed. Less taxes you pay the more you keep. But the more you pay in taxes the more money you make.

    Jack and Jill should cover this in one of their podcasts. I know it’s not as exciting as talking about the size Jill likes :), but we would like to know!

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