Any interest an investor pays on money borrowed to purchase vacant land is investment interest that can be deducted as an itemized personal deduction. However, the annual deduction for investment interest is limited to the investor’s net investment income for the year. Any excess is carried over to future years.
Can vacant land be used for 1031 exchange?
Vacant land held for sale is not eligible for a 1031 exchange. For example, buying a property to do improvements and then selling at a higher price (property flipping). Vacant land also cannot be used to build the taxpayer’s primary residence.
Is it good to invest in vacant land?
Vacant land has long been viewed by many as an attractive investment. After all, it’s the stuff they’re not making any more of. You usually earn no income from vacant land, but you do have expenses for such items as property tax, interest and other carrying costs.
Who are the people who own vacant land?
It depends. First of all, for tax purposes there are two types of people who own vacant land: investors and real estate dealers. Real estate dealers are in the business of buying and selling land. A dealer buys property and resells it, usually at a price higher than the purchase price, and normally after only a short holding period.
How does owning vacant land affect your tax return?
If you don’t itemize your deductions on your tax return, you won’t be able to deduct any of the expenses you incur from owning vacant land. In this event, you should elect to add these expenses to your land’s cost basis. This will reduce any taxable profit you earn when you sell the property.
Is the interest paid on vacant land an itemized deduction?
Any interest an investor pays on money borrowed to purchase vacant land is investment interest that can be deducted only as an itemized personal deduction. Moreover, the annual deduction for investment interest is limited to the investor’s net investment income for the year.
