If you’re selling property, you’re likely looking forward to the profit you’ll make on your investment. However, selling land isn’t only a transaction of funds between buyer and seller. Landowners may also have to pay state or federal taxes.
Tax on selling land varies by location, property type, purchase price, and other factors. With that in mind, you might be wondering: How much tax do I pay if I sell land? What are capital gains? Do I qualify for any exemptions?
In this beginner’s guide, we’ll answer all these questions and more, helping landowners plan ahead and avoid unexpected costs when selling acreage.
Disclaimer: This information is provided for educational and informational purposes only and should not be construed as financial or tax advice. The Land Network is not a licensed financial advisor or tax professional. You should consult a qualified tax professional or financial advisor before making any financial decisions.
What to Know About Taxes When Selling Land
Understanding what taxes can apply is an essential part of planning a successful sale. Taxes can impact:
- Final profit – Budgeting for taxes is crucial to having a clear picture of your finances.
- Timing – Unpaid taxes can delay the closing of a sale.
- Reinvestment opportunity – Your decision to reinvest in new property may be based on how much profit you make after taxes.
All in all, it’s important to know what to expect before listing your property.
Capital Gains Tax
A capital gains tax on selling land applies when your property sells for more than its original purchase price. Capital gains are based not only on your profit, but also on how much your acreage has appreciated, taking into account the sticker price, improvements, and repairs.
Capital gains on selling land are determined by a few factors, including your income level and how long you’ve owned your property.
For tax purposes, land is considered a capital asset. If you sell it for more than you paid, the difference is treated as a capital gain; if you sell it for less, the result is a capital loss, which may offset other gains in the same tax year.
Planning ahead can help manage capital gains exposure. Holding land long enough to qualify for long-term capital gains treatment, keeping records of qualifying improvements, or exploring reinvestment options may help reduce the overall tax impact, depending on your situation. In some situations, capital losses from other assets sold in the same tax year may offset gains, potentially reducing overall tax liability.
Short-Term vs. Long-Term Gains
Capital gains are categorized in two ways: short-term and long-term gains. Typically, land is considered a short-term investment if you’ve owned it for less than a year. Short-term gains are taxed at a landowner’s individual tax rate, which tends to be higher than the rate for long-term gains.
For this reason, it can be beneficial to hold onto acreage for at least a year to take advantage of lower rates.
Short-term gains are generally taxed at ordinary income tax rates, while long-term gains are taxed separately based on your total income, often at lower rates. Because tax treatment differs, the length of time you own land before selling can play a meaningful role in how much tax you ultimately owe.
How to Calculate Your Gain
Capital gains tax rates are either 0%, 15%, or 20% based on your (or your household’s) taxable income. The IRS sets these income rates each year.
For example, let’s say you bought your acreage five years ago for $100,000. You’re now selling it at a profit for $200,000. Your long-term capital gain is $100,000. In 2025, if your annual income is over $47,000 but less than $533,000, then your capital gains rate is 15%, which means you would owe $15,000 in taxes.
This calculation is commonly referred to as your adjusted cost basis, which includes the original purchase price plus qualifying improvements that added long-term value to the land.
However, consider that you made significant improvements to the land, totaling $50,000. These improvements are factored in to raise the base cost of your property and thus decrease your capital gains. In this case, you would add $50,000 to your original purchase price, adjusting the basis to $150,000. Your sale price of $200,000 minus your adjusted price of $150,000 equals $50,000, which means your capital gains are cut in half.
Keeping detailed records of qualifying improvements can help ensure your taxable gain accurately reflects the true cost of ownership over time. Make sure to keep detailed records of any repairs or improvements to justify your capital gains in the event of a sale.
State and Local Taxes
Many states and counties impose additional taxes, such as transfer fees, on land sales. However, this varies by region: states can charge by percentage, tiered value-based rates, or a flat fee.
There are 14 states that don’t charge a real estate transfer tax at all: Alaska, Idaho, Indiana, Louisiana, Kansas, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon, Texas, Utah, and Wyoming. That said, local counties can still impose transfer taxes even if the state doesn’t.
Even in states without a state-level transfer tax, local municipalities may still charge fees, and proceeds from the sale must still be reported on both federal and state income tax returns. Be sure to research your area’s specific tax requirements to stay informed and prepared. Understanding regional tax requirements in advance can help sellers anticipate fees and avoid delays or surprises during closing.
New Investment Income Tax
Depending on your overall income, you may also be subject to a net investment income tax (NIIT) on profits from selling investment land. This additional tax is assessed separately from capital gains tax and generally applies only above certain income thresholds.
For higher-income sellers, factoring this tax into early planning may help avoid unexpected obligations when filing.
Property Tax Adjustments at Closing
Typically, sellers only have to pay property taxes on the part of the tax year they owned the land for, up until the date of sale. The buyer is then responsible for taking over the rest, which is recorded in a closing agreement.
These prorated property taxes are handled at closing and are separate from any capital gains or income taxes related to the sale. While these adjustments don’t reduce income taxes, they help ensure sellers only pay their fair share for the time they owned the property.
Possible Exemptions or Deductions
Fortunately, there are a few ways for land sellers to reduce tax liability on a land sale, including:
- 1031 exchanges – This refers to a swap of “like-kind” properties for investment, business, or agricultural land use to defer capital gains. When structured correctly, a 1031 exchange allows sellers to defer capital gains taxes by reinvesting proceeds into another qualifying investment property.
- Primary residence exemptions – This refers to capital gains exemptions for homes that are primary residences. Eligibility depends on ownership and use rules, including how long the home served as your primary residence. In qualifying situations, this exclusion may significantly reduce or eliminate capital gains taxes tied to the sale of a primary residence.
To identify exemptions and deductions and maximize your overall savings, consider working with a finance professional.
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Here, you can list your land for sale to reach millions of serious buyers. Plus, we make it easy to connect with local land agents who can help you navigate all the financial and tax implications of a land sale.
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Sources:
Investopedia. Capital Gains Tax: What It Is, How It Works, and Current Rates. https://www.investopedia.com/terms/c/capital_gains_tax.asp.
IRS. Topic no. 409, Capital gains and losses. https://www.irs.gov/taxtopics/tc409.
Land Conservation Assistance Network. Summary of Real Estate Transfer Taxes by State. https://www.landcan.org/pdfs/StateTransferTaxChart.pdf.
AOL. States with the highest (& lowest) real estate transfer taxes. https://www.aol.com/states-highest-lowest-real-estate-175700689.html.
Investopedia. What Is a 1031 Exchange? Know the Rules. https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx.
Last Updated on February 3, 2026
