Stepped-up basis for heirs

When you buy land, you need to establish your “basis” for tax purposes. Starting basis is basically your purchase price, plus, perhaps, certain expenses that you incurred.

When you buy real estate, you will often need to allocate basis at the time of purchase among several different accounts, such as improvements (house, barns), timber (separate merchantable timber with immediate sale value from pre-merchantable with future value), minerals and land. The total of these basis accounts cannot exceed your overall basis in the property. Individual basis accounts are set up at the time of purchase, because a landowner often does different things in each account, which increase or decrease the individual account’s basis. As you hold the property, each basis account will be adjusted according to what you do. If you build a bridge, the basis in your land account increases, because it is a permanent improvement in the property. If you sell an acre from your land account, your basis will be reduced. Separate basis accounts can help you pay off a purchase through the sale of some assets. Read more

Land tax policies

Readers might take a look at the two presidential campaign websites to see which candidate appears to understand land issues best (or if at all).

Tax policy is often used by the government to discourage and encourage certain behaviors. How each of us defines the best interest of the country determines what our tax-policy preferences are.

But as a general exercise in seeing what we think, what are your opinions on the following “land issues,” as they relate to tax policies:

1.  Capital gains rate for small (say under $2 million) land investments? Lower, higher, same?

2.  Capital gains rate for large land investments? Lower, higher, same?

3.  Do more, less, or same to help second-home ownership?

4.  More generous, less generous, or same federal tax benefits for conservation-easement donation?

5.  Make it easier for individuals to put retirement savings into land through an IRA and other vehicles?

6.  Should certain types of land improvements be expensed rather than depreciated? Is there a public benefit to that position?

7.  Should the dealer tax policy be relaxed, stay the same, or tightened?

8.  Should division be encouraged, discouraged, or left alone? What types of division?

9.  Should 1031 rules be changed to allow/promote deliberate sequential exchanges?

10. Is there a public interest in promoting small-farm ownership and production that would justify tax incentives for such owners and their production?

11. With the backout of timbering on public lands, should tax incentives be offered to private landowners to mangage woods for timber production and provide a break on timber-derived taxable gain?

12. Should building and use restrictions on floodplain, critical habitat (for endangered species) and wetlands be considered a taking and therefore made eligible for tax assistance?

Other ideas? For and against.

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Curtis Seltzer is a land consultant who works with buyers and investors. He is author of How To Be a DIRT-SMART Buyer of Country Property at www.curtis-seltzer.com where his columns are posted. He is also a contributor at www.landthink.com.