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Tax Savings for Owning Raw Land

Audio version available here (1 min. 40 sec.)

When most people think of real estate investing they think of rental properties or house flipping. However, purchasing raw land is a great first venture into real estate investing and tax savings. Raw land is defined as having no buildings or improvements. Unlike most common real estate investments, raw land is much cheaper to purchase and there is no worry over maintaining a building or “dealing with tenants” who rent the property. The tax benefits for owning raw land are a bit limited but are still worth taking advantage of.

One way to reduce your taxes by owning land is to deduct property taxes. You can report property taxes paid on your personal tax return by including the amount under “Other Taxes” on your Schedule A. Since your piece of raw land is an investment property, it is not subject to the $10,000 limit on property tax deductions imposed by the Tax Cuts and Jobs Act.

You can also deduct interest you’ve paid on money you borrowed to initially purchase the property. It counts as investment interest and should be deducted as an itemized personal deduction on your Schedule A. A caveat though is that this deduction is limited to the amount of your net investment income for the year.

It is essential to itemize these deductions on your tax return. Failing to itemize will not allow you to receive any of the benefits for property taxes or interest costs. If you choose not to itemize, you will need to elect to capitalize your expenses. This will then reduce your taxable profit when you sell the land. It won’t save you as much on your tax return, but is better than nothing.

Tax savings on raw land may be few but getting any money back for your real estate investments can be advantageous for business owners. If you are wondering how you can receive tax benefits from any of your real estate investments, reach out to the tax experts at XQ CPA. We would love to guide you on your business journey.

Phone: 832-295-3353

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Want to pay less taxes? Read XQ CPA's official tax planning guidebook! How to Grow Your Wealth Through Tax Planning.

Arial view of undeveloped rural land


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