Capital gains tax strategies?

[RogerC]

In 2006 I purchased a parcel of vacant land, kept it for almost 1 year, and then sold it in 2007 for a profit of about $40k. If I undersatnd correctly, I will owe about $8k in capital gains tax. I have two questions:

1) I payed the buyer's realtor $4k to put me in contact with the buyer. Can I deduct that $4k from the $40k before calculating the actual amount of tax owed?

2) If I spend the $40k profit on remodeling my existing home for the purpose of selling it, can I avoid paying any of the capital gains tax? If so, how long do I have after the gain to do this?

I appreciate any advice!

[wexeter]

It looks like you held the property for less than one (1) year, so your gain would not be a capital gain tax rate but would be ordinary income. You must hold the asset for at least 12 months in order to qualify for capital gain taxes.

Yes, the $4,000 that you paid to the buyer's agent would be considered a cost of the sale and would be deductible.

No, improvements to your primary residence would not defer the payment of your ordinary income taxes.

You might want to consider a 1031 exchange for future transactions like this if you have the intent to hold for investment.

[RogerC]

Thanks wexeter - I appreciate your advice. I pretty much did what you said and will look into the 1031 exchange.

[wexeter]

Hi RogerC,

You are most welcome. Please keep us in mind as your 1031 Exchange Qualified Intermediary. We handle all types of 1031 exchanges in all 50 states. We look forward to working with you.