how to avoid paying tax on the sale of a vacant lot

[janine]

taxpayer owns a principal residence and two vacant lots.  Now retired, taxpayer want to sell one of the two lots to build a vacation home on one of the lots he owns. 

Is there a way to avoid paying the taxes on the sale of one lot, which funds will be used for the building of the vacation home on the other lot?

[TaxGuyBill]

Sure.  The taxpayer can sell the lot for less than his Basis in the lot.   😁

If the sold "lot" and/or the "vacation home" is for personal purposes, any gain will be taxable.

[janine]

Thanks for your quick reply.  Yes it is for personal use.  I have been reading the Like kind exchange 1031, but I really do not understand it.  That is why I reached out to the community.

[abctax55]

Read a bit more & you will see that § 1031's don't work for personal use property.

[PATAX]

👍I also believe you have to get a qualified intermediary for 1031 exchange but this is just my opinion

[qbteachmt]

"I have been reading the Like kind exchange 1031, but I really do not understand it. That is why I reached out to the community."

My favorite articles lately have been found on Investopedia:

https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx

1031: "Let's sell that marina and buy a shopping center."

Not 1031: "Let's sell a lot, buy a different lot and build a vacation home."

I describe it to my clients as "carrying over the invested value to the new project."

"I also believe you have to get a qualified intermediary for 1031 exchange but this is just my opinion"

That's not just opinion; you cannot touch the funds (needs to be handled as escrow) or DIY.

[janine]

to PATAX yes, I read about the intermediary.  But taxpayer will not go that route.

So it looks like it is going to be a selling transaction taxable to taxpayer.  Thank  you all for your input.

[janine]

qbteachmt:   Thanks for your examples.  It helps to put it in layman terms for the taxpayer

[PATAX]

QB I usually end my statements with the phrase just my opinion... That does not mean what I stated is an opinion of someone else ...Don't get worked up... Just my opinion

[qbteachmt]

"I usually end my statements with the phrase just my opinion"

I'm just trying to give you credit that it's more than opinion; it's fact.