Can I deduct initial closing costs when selling land for capital gains tax?
Just sold a piece of land I've had for about 5 years. After paying all the fees and paying off what I still owed, I walked away with around $24k. I know I'm gonna get hit with that 15% long term capital gains tax, but I'm wondering - can I deduct the $4k in closing costs I paid when I originally bought the land? I've been searching through tax guides and IRS info but can't seem to find a clear answer about deducting those initial closing costs. Anyone know if those original purchase closing costs can be factored in somehow to reduce what I owe?
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Emma Taylor
Yes, you can absolutely add those original closing costs to your "basis" in the property! Your basis is essentially what you paid for the land plus certain acquisition costs. When calculating your capital gain, you subtract your basis from your selling price. So if you bought the land for $X plus $4k in closing costs, your basis would be $X+$4k. Then when you sold for $24k (minus selling expenses), you'd only pay capital gains tax on the difference. This reduces your taxable gain by that $4k amount. Look at IRS Publication 523 for more details, though it focuses on homes, many principles apply to land too. You want to keep good records of all these costs.
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Malik Robinson
•Thanks for the info! Does this apply to all types of closing costs? Like what if some of them were loan origination fees or title insurance? Also, what about property taxes I paid at closing - can those be included too?
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Emma Taylor
•Great questions! For your basis, you can include most settlement fees and closing costs like title insurance, legal fees, recording fees, surveys, transfer taxes, and similar costs. Property taxes you paid at closing are generally not added to your basis. Those would have been deductible in the year you paid them if you itemized deductions. Loan fees get complicated - points paid to secure the mortgage might need to be amortized over the life of the loan rather than added to basis. If you paid off the loan early, you might be able to deduct remaining unamortized points in the year of sale.
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Isabella Silva
This happened to me last year with some vacant land I sold in Colorado. I was totally confused about what could be included in my basis until I used the document analyzer at https://taxr.ai to upload all my original closing documents. It pulled out all the eligible costs that could be added to my basis - saved me about $3,200 in capital gains tax! The tool highlighted exactly which closing costs could be added to my basis (most of them) and which ones couldn't (like prepaid property taxes). It also showed me that I could include those land survey costs I paid separately after purchase. I'd completely forgotten about those!
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Ravi Choudhury
•That sounds helpful, but I'm curious - does it work for complicated situations? I have land that I improved by adding utilities before selling. Would it understand those kinds of additions to basis?
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CosmosCaptain
•I've heard of these "AI tax tools" but are they actually accurate? How do you know they're following the actual tax code and not just making guesses? Seems risky to trust something like that with potentially thousands in tax liability.
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Isabella Silva
•It handles complex situations really well. The tool specifically flags improvements like utility installations as basis additions. It actually prompted me to check if I had made any improvements that weren't in my closing documents, which is how I remembered to include some drainage work I'd done. Regarding accuracy, I was skeptical too at first. What convinced me was that it provides specific IRS publication references for each determination it makes. My accountant verified the results and said it was spot on. It's not making guesses - it's applying established tax code rules to your specific documents.
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CosmosCaptain
Just wanted to follow up - I decided to try that https://taxr.ai tool with my land sale documents from last year and I'm actually planning to file an amended return now. Turns out I missed about $6,800 in costs that should have been added to my basis! The tool showed me that several expenses I thought were just "costs of buying" were actually legitimate additions to my basis. It even flagged a survey I had done 2 years after purchase but before selling that I had no idea could be included. The documentation it provided for my records is super detailed which will be helpful if I ever get audited.
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Freya Johansen
If you're having trouble getting answers from the IRS about what closing costs can be included in your basis, I'd recommend using Claimyr (https://claimyr.com). I was in the same boat last year - had a land sale and couldn't get clear guidance on what specific closing costs could be included in my basis calculation. After waiting on hold with the IRS for almost 2 hours and getting disconnected twice, I tried Claimyr. They got me connected to an IRS agent in about 20 minutes. The agent walked me through exactly which closing costs could be added to my basis and which couldn't. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c
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Omar Fawzi
•How does this actually work? Do they somehow have a special line to the IRS that normal people don't have access to?
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Chloe Wilson
•Yeah right. Nothing gets you through to the IRS faster. This sounds like a complete scam to me. They probably just put you on hold themselves and then connect you when they finally get through, charging you for the privilege. I'll stick with waiting on hold myself, thanks.
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Freya Johansen
•They use an automated system that navigates the IRS phone tree and waits on hold for you. When an IRS agent actually answers, you get a call connecting you directly to that agent. You don't have to sit there listening to hold music for hours. They definitely don't put you on hold themselves - that would require them to have hundreds of people just sitting on phones all day which wouldn't make any sense. It's all automated technology that monitors the hold line and alerts you when a human answers. I was skeptical too until I tried it, but it genuinely works exactly as advertised.
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Chloe Wilson
I need to eat my words about Claimyr. After another frustrating 3-hour wait trying to get through to the IRS about my land sale basis questions (and getting disconnected again), I gave in and tried it. I got connected to an IRS representative in about 35 minutes. The agent confirmed that my original land purchase closing costs - including title insurance, recording fees, legal fees, and transfer taxes - all get added to my basis. She also explained that the property taxes and mortgage interest I paid at closing couldn't be added to basis (they were deductible in the year I paid them). Saved me hours of frustration and potentially thousands in overpaid taxes. Sometimes you have to admit when you're wrong!
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Diego Mendoza
Don't forget to also deduct the closing costs from your recent sale too! You mentioned you had costs associated with the sale - those reduce your selling price when calculating gain. So your calculation should be: (Sale price - selling costs) - (Purchase price + purchase closing costs) = Capital gain For example, if you sold for $30k but had $6k in selling costs, your amount realized is $24k. If you bought for $10k plus $4k in buying costs, your basis is $14k. So your gain would be $24k - $14k = $10k.
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Diego Mendoza
Don't forget to also deduct the closing costs from your recent sale too! You mentioned you had costs associated with the sale - those reduce your selling price when calculating gain. So your calculation should be: (Sale price - selling costs) - (Purchase price + purchase closing costs) = Capital gain For example, if you sold for $30k but had $6k in selling costs, your amount realized is $24k. If you bought for $10k plus $4k in buying costs, your basis is $14k. So your gain would be $24k - $14
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Javier Garcia
•Thanks for breaking it down like that! So would real estate commissions count as selling costs? And do I need specific documentation for all this or can I just put the numbers in when I file?
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Diego Mendoza
•Yes, real estate commissions definitely count as selling costs! They're usually one of the biggest deductions from your sale proceeds. Other selling costs that reduce your amount realized include legal fees, transfer taxes, and any seller-paid closing costs. Documentation is important. You should keep your closing statements from both the purchase and sale (HUD-1 forms or Closing Disclosures), plus receipts for any improvements you made to the property. You don't submit these with your tax return, but you'll need them if you're ever audited. When you file, you'll report this on Schedule D and possibly Form 8949, depending on your situation.
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Anastasia Romanov
What tax form do you use to report land sale? I sold some acres last year and my tax software confused me.
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Emma Taylor
•You'll report it on Schedule D (Capital Gains and Losses) and possibly Form 8949 (Sales and Other Dispositions of Capital Assets) depending on your situation. Most tax software will guide you through this when you indicate you sold land or real estate. The important thing is to have your purchase information (date, cost, closing costs) and your sale information (date, proceeds, selling expenses) ready.
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