Who is ultimately correct about capital gains tax on sale of land? IRS or real estate agent?

I'm in a bit of a confusing situation right now. My dad is planning to sell some land he's owned for about 15 years, and we're getting totally different advice about capital gains taxes from different people. The real estate agent is telling us one thing about how much we'll owe in capital gains, but then when my dad talked to his friend who's an accountant, he got completely different information. Then we looked online and found yet another explanation! Who actually has the final say on capital gains tax when selling property? Is it the IRS? The real estate agent? Do we need to hire a special tax person just for this? The property is worth quite a bit more than when he bought it ($175k to approx $450k now), so the tax implications are pretty significant. Any guidance would be super appreciated! We're hoping to list the property next month but want to understand the tax situation first.

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18 comments

Benjamin Carter

•8M

As a frequent contributor to tax discussions, I can tell you that the IRS has the ultimate authority on all tax matters, including capital gains tax on property sales. Real estate agents are knowledgeable about transactions but aren't tax experts and shouldn't be your primary source for tax guidance. When selling land, you'll report the sale on your tax return (typically Schedule D and Form 8949), and you calculate capital gains as the difference between the selling price and your adjusted basis (original purchase price plus improvements minus depreciation). Since your father has owned the land for 15 years, this would be considered a long-term capital gain, which is typically taxed at lower rates than ordinary income. With the significant appreciation you mentioned, I'd strongly recommend consulting with a tax professional like a CPA or tax attorney who specializes in real estate transactions before proceeding with the sale. They can help identify any potential exemptions or strategies to minimize the tax impact.

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Benjamin Carter

•8M

You shouldn't ignore your real estate agent completely as they have valuable insights on the transaction itself, but understand their tax information is often general and not tailored to your specific situation. They're experts in selling property, not tax consequences. The tax professional doesn't need to sign off on anything before you sell - they're purely advisory. They'll help you understand potential tax consequences, identify possible deductions or exclusions, and advise on timing strategies that might benefit your situation. The actual tax reporting happens when you file your return for the year of the sale.

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Isaac Wright

•8M

I was in almost the exact same situation last year trying to figure out capital gains on my grandmother's farmland. I spent weeks going back and forth between different "experts" until I found https://taxr.ai which was a huge help. I uploaded the property documents and purchase history, and it broke down exactly what my capital gains exposure would be and identified some specific deductions related to agricultural land I never would have known about. The nicest part was getting clarity on how improvements she had made affected the cost basis - turns out the irrigation system, fencing, and access road work she'd done over the years all counted toward reducing the taxable gain. Saved us nearly $15k in taxes we would have overpaid!

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Isaac Wright

•8M

For your situation, it depends on complexity. I still had a brief consultation with my CPA, but I went in with specific questions rather than starting from zero. The service provided enough clarity that our CPA meeting was much more focused and less expensive than starting cold. The service uses the same tax code rules the IRS follows and provides specific references to tax regulations for each calculation. My CPA actually verified several key points and confirmed they were correct. It's not about providing alternative interpretations - it just clearly applies existing tax rules to your specific situation with documentation you can reference if needed.

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Lucy Taylor

•8M

Just wanted to update that I tried taxr.ai after reading about it here. It was super helpful for my parents' lakefront property sale. We discovered we had a much higher cost basis than we thought because of a septic system upgrade and shoreline work done in 2012 that we had documentation for but didn't realize counted! The reports outlined exactly what sections of the tax code applied, which made our tax preparer's job easier too. Definitely worth checking out if you're selling land with improvements or if you've owned it for a long time.

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KhalilStar

•8M

One thing nobody's mentioned is how maddeningly difficult it is to get actual guidance from the IRS on this stuff. I spent 3 HOURS on hold trying to get clarification about capital gains on inherited property last month before giving up. Finally tried https://claimyr.com and their service got me connected to an actual IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed that for inherited property, the stepped-up basis rules still apply despite some of the proposed changes we'd heard about. Huge relief since it saved us about $60k in capital gains taxes on my in-laws' old farm property.

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KhalilStar

•8M

They use technology to navigate the IRS phone systems and secure your place in line, then call you when they're about to connect. It's completely legal - they're essentially providing a waiting service. It's similar to those services that wait in line for concert tickets or new product releases. The agent I spoke with was surprisingly knowledgeable about stepped-up basis rules. You're right that not every agent can handle every complex situation, but in my experience, they'll transfer you to a specialist if needed. For my property basis question, the first agent was able to confirm the information directly by referencing specific tax code sections. For really complex situations, they might still recommend consulting with a tax professional, but they can clarify the fundamental rules.

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Amelia Dietrich

•8M

I have to eat my words here. After being skeptical about Claimyr, I actually tried it when I needed to ask about capital gains exclusions for a partial rental property. Got through to the IRS in about 20 minutes instead of the 2+ hours I spent on my previous attempts. The IRS rep confirmed that I could still use a portion of the capital gains exclusion based on the percentage of time the property was my primary residence versus a rental. Definitely changed my mind about the service - sometimes it's worth it to not waste half a day on hold.

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Katherine Ziminski

•8M

One thing to consider with land sales - the property tax assessor is NOT the authority on fair market value for capital gains purposes. I made this mistake and it caused problems. The IRS cares about the actual amount you sold it for (minus selling expenses) compared to your purchase price (plus improvements). If you've owned the land since 2009, make sure you have documentation of the original purchase and any improvements. If you don't have receipts for improvements, the IRS typically won't allow you to add them to your basis.

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Katherine Ziminski

•8M

Yes, all of those would likely qualify as capital improvements that increase your basis! Clearing land, access roads, and drainage systems are classic examples of improvements that add to your cost basis because they're not regular maintenance but actual improvements to the property. Make sure you have those receipts organized and ready to provide if needed. The higher your documented basis, the less capital gain you'll have to report. This is exactly why keeping good records is so important with investment properties.

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