Buying a farm- questions?

[Liv4Rut]

I was wondering if someone who knows could help clarify something a bit for us. A buddy wants to buy a farm. There is a house and land. My buddy wants just the land. The guy considered selling the land separately which is what my buddy wants but after talking to his tax guy he said it would be best for him to sell it all together.

Why is this? I believe it is capital gains. He is worried about having to pay taxes or something from the land he sold. If this is true, what kind of tax % would this be? Thanks in advance!!:drink2:

 

[Sligh1]

15% is the standard Capital Gains rate IF you own something 1 or more years (less and it's regular income tax rate).
I can't figure this one out. Let's say the house is valued at $100,000 and the land is valued at $100,000 for a total of OBVIOUSLY 200,000. Your buddy buys land for 100,000 and the guy sells the house to someone else for 100,000- shouldn't make a difference. Now, the accountant has MORE information you need to seek out Really, WHY? Something else is going on here- I can think of about 20 examples in my head of WHY the accountant could have said this- all are reasonably complicated. (let's say he owned land for several years and built house 15 years later on his own at low costs or whatever).
1) ask accountant WHY?
2) if he REALLY wants the land, maybe he could chip in towards the difference. Let's say his original scenario would cost TOTAL of $30,000 in cap gains BUT now it's $35,000 if he splits, maybe your buddy could adjust price slightly higher.
3) Bottom line, the accountant MIGHT be incorrect, might be correct too. I'd like to hear the rationale.

 

[MossyDXT]

The accountant is correct. I couldn't tell you why, but he is correct. We sold my mom's farm a couple years ago and we saved a bunch of money by selling the land and the house together. It has somthing to do with how much the land goes up in value from when you buy it to when you sell it. As it would be sold with a house it would be considered an actual farm and not just land. Actual farms get alot more government discounts than just land would. From the guys point of view he's doing the right thing.

 

[muddy]

1 gallon of gas + 1 match = everyone's happy.

Now if the house is really nice might be worth having it.

* I by no way condone arson, I just really like fires.

 

[MK M GOBL]

Sligh1 is correct, there are many reasons why this scenario could be true. Too hard to tell for sure without more information. My guess would be that the owner would like to sell his house/land and buy a new house (with or without land). He can sell his primary residence and purchase a new primary residence without paying capital gains (some limitations).

 

[cwhite]

Without knowing more details, this is the likely reason - If they have lived in the residence for 2 of the last 5 years, they can most likely exclude the gains from tax totally if sold as one parcel. If the land is seperated, the gains on that parcel would now be subject to capital gains tax instead of likely tax free.