Tax Breaks for the Development of Raw, Vacant Land

In last week’s edition of our Land Sales Blog we discussed the plentiful tax breaks for taxpayers that own land as an investment.  This week we tackle tax breaks that you can benefit from if you choose to develop that raw land for residential or commercial uses!

Land developments and improvements are projects that land owners may carry out on their property to beautify them, add utility and generally make them more valuable.  In some cases, the funds that property owners spend on land improvements or land development may come back to them in the form of tax credits, thus reducing or eliminating the cost of the project by reducing the tax burden.

Land improvement can be defined as any physical project that a real estate owner carries out to raise the value of the land.  Land improvement projects can be simple matters, such as adding sidewalks or wiring lighting for walkways.  They can also be large, complex projects, such as demolishing old buildings and constructing new ones.

While real estate projects can result in both tax credits and tax deductions, real estate owners should understand the difference between a credit and a deduction before trying to figure the net effect that a particular land improvement project has on his tax burden.  A tax credit is a flat amount of money that a person subtracts from the total amount of money he must pay in income tax.  A tax deduction, on the other hand, reduces the amount of his income on which the government levels income tax.

While many types of land improvement projects can result in tax deductions, only select types result in tax credits.  For instance, for the 2012 tax year, the federal government offered tax credits to home owners who had invested in property improvements that promote energy efficiency.  Such improvements may include the installation of photovoltaic solar cells or biomass stoves.

In addition to tax credits that the federal government allows for land improvements, various states may also issue tax credits to land owners who make qualified improvements to their land.  Only states that levy an income tax offer such credits.

To make the most out of land investment and incur the highest tax deduction it is best to consult a professional investment consultant or your accountant.  To learn more about the development of vacant land or to purchase vacant land for investment or development contact a member of the 9 Core Realty land sales team at (239) 333-2221.


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