Question about Capital Gains on land sale and resulting impact to MAGI

[bmjohnson35]

We hope to close on a sale of an empty piece of land within the next 30 days or so.  It was a residential lot that we didn't intend to ever use.  We have owned it for over 30 yrs.  The land is selling for $31,000 and we paid $15k.  Basic math says this will result in $16,000 LT capital gains.  Therefore, our MAGI for the year will increase by $16k.  We will incur around $4500 in costs associated with the closing (commission, attorney fee & other fees).  Will the $4500 in costs reduce the MAGI impact by $4500 or will our MAGI increase by $16k, regardless of these costs?

P.S. Not worried about capital gains taxes, since we will be well below the $83k threshold income.

[secondcor521]

The closing costs will reduce the proceeds, which will in turn reduce the capital gain, which will in turn reduce AGI, which in turn will reduce (AFAIK all forms of) MAGI.  So your net MAGI increase will be $11.5K.

Note you may also be able to add certain purchasing costs to basis to further reduce the capital gain and the MAGI impact.  You might look at IRS Pub 551 and the instructions for Schedule D and Form 8949 for details.

[bmjohnson35]

I did a simulated run for next year using my 2021 tax software (HR Block) and it didn't have anywhere to account for those costs.  I thought I may even be able to reduce AGI with the taxes we paid over the 30+ years of ownership.  I will review those forms.

Thanks.

[secondcor521]

I did a simulated run for next year using my 2021 tax software (HR Block) and it didn't have anywhere to account for those costs.  I thought I may even be able to reduce AGI with the taxes we paid over the 30+ years of ownership.  I will review those forms.

Thanks.

You would just subtract the selling costs from the proceeds that you enter in to Form 8949 column (d).  I suggest reviewing the instructions for Form 8949 under "Column (d)—Proceeds (Sales Price)" at https://www.irs.gov/pub/irs-pdf/i8949.pdf page 5 column 2 for the part that applies to you (it'll probably depend on whether or not you receive a Form 1099-S from the escrow/title/closing company - look in your closing paperwork or ask your title agent).

Taxes paid on personal real estate would generally be an itemized deduction in the year paid.  See instructions for Schedule A, line 5b at https://www.irs.gov/pub/irs-pdf/i1040sca.pdf page A-7 column 1.

[bmjohnson35]

Thank You! I will read through this additional info.

"Taxes paid on personal real estate would generally be an itemized deduction in the year paid.  See instructions for Schedule A, line 5b at https://www.irs.gov/pub/irs-pdf/i1040sca.pdf page A-7 column 1."

That's what I thought. We have been taking standard deduction for a long time and the taxes on the land was never above $150 for the year. 

[Sandi_k]

Thank You! I will read through this additional info.

"Taxes paid on personal real estate would generally be an itemized deduction in the year paid.  See instructions for Schedule A, line 5b at https://www.irs.gov/pub/irs-pdf/i1040sca.pdf page A-7 column 1."

That's what I thought. We have been taking standard deduction for a long time and the taxes on the land was never above $150 for the year.

There's no further tax advantage to explore, then. Personal property taxes are either covered annually with your itemized schedule A, or you lose it when using the standard deduction. You don't get to write off 30 years of personal ownership expenses when selling.

[bmjohnson35]

Thank You! I will read through this additional info.

"Taxes paid on personal real estate would generally be an itemized deduction in the year paid.  See instructions for Schedule A, line 5b at https://www.irs.gov/pub/irs-pdf/i1040sca.pdf page A-7 column 1."

That's what I thought. We have been taking standard deduction for a long time and the taxes on the land was never above $150 for the year.

There's no further tax advantage to explore, then. Personal property taxes are either covered annually with your itemized schedule A, or you lose it when using the standard deduction. You don't get to write off 30 years of personal ownership expenses when selling.

Sandi_k - It does appear I can't reduce my AGI with the past taxes, but based on the form 8949 secondcor521 references, it does look I can factor in selling expenses to reduce the net proceeds, which should reduce our AGI. 

[Sandi_k]

Thank You! I will read through this additional info.

"Taxes paid on personal real estate would generally be an itemized deduction in the year paid.  See instructions for Schedule A, line 5b at https://www.irs.gov/pub/irs-pdf/i1040sca.pdf page A-7 column 1."

That's what I thought. We have been taking standard deduction for a long time and the taxes on the land was never above $150 for the year.

There's no further tax advantage to explore, then. Personal property taxes are either covered annually with your itemized schedule A, or you lose it when using the standard deduction. You don't get to write off 30 years of personal ownership expenses when selling.

Sandi_k - It does appear I can't reduce my AGI with the past taxes, but based on the form 8949 secondcor521 references, it does look I can factor in selling expenses to reduce the net proceeds, which should reduce our AGI.

Yes, that's correct.

[MDM]

Can I deduct all real estate taxes on a piece of land sold? might be of interest.