Unimproved Land Property Tax Deductions

Unimproved Land Property Tax Deductions
••• Jupiterimages/Goodshoot/Getty Images

What is unimproved land? How is it different from other forms of real estate investment? And could you benefit from investment land expense deductions while filing taxes?

If you want to build your wealth by investing further in real estate, you should go ahead. That’s because the path you intend to take is one that is most likely to help you significantly build your wealth. But it would be wise to have answers to these kinds of questions to enable you to determine the properties to invest in.

Is Vacant Land Tax Deductible?

Did you know that ​16.7 percent​ of large US cities consist of vacant lands? So, opportunities abound in that real estate sector. And if you are a real estate investor or are interested in developing a new plot of land for personal or commercial use, you may be entitled to a variety of helpful tax deductions for vacant land.

Although purchasing land can be an expensive proposition, you can help offset your expenses by lowering your tax bill as much as possible using deductions and credits. The specific type of deductions you can claim on unimproved land will depends specifically on your use of the land. Deductions will differ for personal and professional use.

Deductions on Property for Personal Use

So, can you deduct land purchase on taxes? Yes, you can. If you have purchase unimproved land for personal use, you will likely be able to deduct your recurring property taxes on the property in question. However, to qualify for this particular deduction, the land in question must be used exclusively for personal purposes.

The IRS may ask for proof that the land in question is rightfully yours and that the property was not used for commercial gain. If you are unable to prove conclusively that your property has not been used for commercial gain, the IRS may not allow you to claim deductions reserved for personal use.

Deductions for Investment Property

If you have purchased an unimproved plot of land with the intent of transforming it into a revenue generator, you will also be eligible to claim a series of deductions focused on the maintenance and improvement of the property.

Investment land tax deductions incorporate the bulk of expenses you will likely incur as you refine and promote your land. For example, if your land is being used to develop a new commercial property, any expenses associated with clearing or improving the property will qualify as tax deductible.

Likewise, you can add property taxes paid on the property to the previously mentioned expenses and then subtract these from your income in order to derive a net investment gain or loss. And if your adjusted gross income level is ​less than $100,000​, you may be able to deduct up to ​$25,000 of investment losses on your tax return against your W-2 wages or other ordinary income.

As you can see, investment land tax deductions are widely available.

Filing Your Taxes

You can use IRS Form 1040 in order to claim a variety of deductions related to both personal and commercial use of the property in question. If you have purchased the land as part of an investment and then generated a profit or loss from it through sale, you will likely be required to report the capital gains from this transaction as part of IRS Form 1040 Schedule D.

It is critical that you take the time to properly document and report all pertinent information relating to your unimproved land, as failure to do so could result in stiff fines or penalties.