Reviewed June 2026 by the FrontierAcre team
How capital gains works when you sell land: what is taxed, the rough rates, the step up on inherited land, and how a 1031 exchange defers it. Plain English, not tax advice.
When you sell land for more than you paid, the profit is generally subject to capital gains tax. The amount depends on how long you held it, your income, and your cost basis. This is general information, not tax advice, so confirm the specifics with a tax professional.
You are taxed on the gain, not the full sale price. The gain is roughly the sale price minus your cost basis, which is what you paid plus improvements and certain costs, minus your selling expenses. A bigger basis means a smaller taxable gain.
Land held more than a year is taxed at long term capital gains rates, commonly 0, 15 or 20 percent at the federal level depending on your income, plus any state tax. Land held a year or less is taxed as ordinary income, which is usually higher.
If you inherited the land, your basis is usually its value at the date of death, not what the original owner paid. That stepped up basis often means a much smaller taxable gain when you sell, sometimes close to zero if you sell soon after.
For investment or business land, a 1031 like kind exchange lets you defer the capital gains tax by reinvesting the proceeds into other qualifying real estate within strict deadlines. It is powerful but technical, so it is done with a qualified intermediary and a tax advisor. See our 1031 and portfolio page.
Common tax questions when selling land. Not tax advice.
Usually yes, on the profit, which is the sale price minus your cost basis. Land held over a year is taxed at long term capital gains rates, which are lower than ordinary income. Always confirm with a tax professional for your situation.
For land held over a year, federal long term capital gains rates are commonly 0, 15 or 20 percent depending on your income, plus any state tax. Land held under a year is taxed as ordinary income. Your actual rate depends on your bracket.
The most common route for investment land is a 1031 like kind exchange, which defers the tax if you reinvest in other qualifying real estate within the deadlines. Your cost basis, improvement costs and selling expenses also reduce the taxable gain. Speak to a tax advisor.
Inherited land usually gets a stepped up basis to its value at the date of death, so you are typically taxed only on the gain since you inherited it, which is often small. This is a question for your tax professional.
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