Do I pay capital gains when I sell land?
Yes, when the sale produces a gain. Federal tax reaches the gain, not the price: gain is figured from the seller's basis, generally what was paid for the land. Land held more than one year generally gives a long-term gain and one year or less a short-term gain, though inherited land counts as held longer than a year. Virginia's income tax starts from federal adjusted gross income.
A gain sits between the sale price and what the land cost
Every capital gains question on a land sale starts with two numbers: what the land sells for, and the seller's basis in it. The tax is aimed at the distance between them, never at the price by itself.
The IRS describes basis as generally the amount paid for the asset, and says basis is what you use to figure any gain or loss on a sale or other disposition. So a tract bought long ago for little and sold now for much more carries a wide gap, while a tract that sells for about what it cost may carry little or none. Records of the purchase matter for that reason: the old deed and the settlement papers from the day it was bought are where the starting number usually lives.
Basis works differently when the land was not bought at all. Land that came through an estate generally starts from a different figure, explained in stepped-up basis on inherited land. The deed, the heirs and who signs when that land sells are covered in how to sell land you inherited.
More than a year or not: the holding line sorts the gain before any rate applies
Once there is a gain, the calendar sorts it. Generally, an asset held more than one year gives a long-term capital gain, and one held one year or less gives a short-term gain. The IRS lists exceptions to that rule, and one of them is property acquired from a decedent.
| Kind of gain | How the IRS describes the rate |
|---|---|
| Net short-term capital gain | Taxed as ordinary income at graduated rates |
| Most net capital gain, most individuals | No higher than 15 percent |
| Some or all net capital gain | May be taxed at 0 percent |
| Taxable income above the 15 percent thresholds | 20 percent applies to the extent income exceeds them |
| Unrecaptured section 1250 gain from selling section 1250 real property | A maximum 25 percent rate |
Two more pieces sit outside that table. The IRS notes that individuals with significant investment income may be subject to the net investment income tax. And which rate reaches a given seller depends on that seller's whole return, which is why no page can say what a particular land sale will cost in tax.
The main-home exclusion reaches land only as vacant ground sold with the home
The best-known break in this area belongs to houses. IRS Topic 701 says a seller with a capital gain on the sale of a main home may qualify to exclude up to $250,000 of that gain, or up to $500,000 on a joint return with a spouse.
- Ownership and use. In general the seller must meet both tests: owning the home, and using it as a residence, for at least 24 months of the 5 years before the sale. On a joint return either spouse may meet the ownership test, but both must meet the use test.
- Recent use of the exclusion. Generally a seller is not eligible if gain on another home was excluded during the two years before this sale.
Land gets in only one way. Publication 523 allows the sale of vacant land adjacent to the land the home sits on to be included in the sale of the home if all of these are true: the owner owned and used the vacant land as part of the home, the land sale and the home sale happened within 2 years of each other, and both sales meet the eligibility test or qualify for partial benefits. When they do, the two sales are one transaction for tax purposes, and the exclusion applies once.
The structure matters too. The publication says that if the home itself is moved off the land it stood on, that land no longer counts as part of the home, and gives the example of a mobile home moved to a new lot with the old lot then sold. A hunting parcel, a wooded tract or a farm that was never owned and used as part of the home is not reached by this exclusion.
Virginia begins from the federal figure and then modifies it
A Virginia resident's state tax on a land sale does not start from scratch. Under Va. Code 58.1-322, Virginia taxable income begins with federal adjusted gross income, with the modifications listed in the sections that follow it.
The tax is then imposed on the schedule in Va. Code 58.1-320, whose top bracket is five and three-quarters percent on income in excess of $17,000. Those modifications include subtractions not covered here, so how a land gain moves through a Virginia return, and whether any modification reaches it, belongs to a CPA.
Two other structures come up in land sales and have their own pages. Trading investment land for other real property is covered in what a 1031 exchange is. A buyer paying over time is covered in seller financing on land; how installment payments are taxed is a CPA's question.
The records a CPA asks for before running the number on a land sale
Nothing here settles a particular seller's tax. What it does is tell you which facts decide the answer, so the first meeting with a CPA is short and specific.
How the land was acquired
Bought, inherited or received another way. The basis rules differ, and inherited property has its own holding-period rule.
The purchase records
The deed and the settlement papers from the purchase, for the starting basis.
The dates
When it was acquired and when it will sell, for the one-year line.
Whether any of it was part of the home
For the adjacent vacant land rule, and whether the home sale falls within 2 years.
The structure of the sale
A straight cash sale, an exchange into other property, or seller financing with payments over time.
Terms in that list such as seller financing are defined in the land sale glossary, and the longer walk-throughs of selling, dividing and closing on land are in Land 101.
Weighing a land sale and wondering what the gain question looks like?
Send the county, the acreage and roughly when the land was acquired. Lowell can give an opinion of value so you and your CPA are working from a real number, and the tax math stays with the CPA. No cost, no obligation.
Got it. Thank you.
We'll be in touch shortly with an honest read.
Questions this raises
Can I deduct a loss if my land sells for less than I paid?
Not always. IRS Topic 409 says losses from the sale of personal-use property, such as a home or a car, are not tax deductible. Whether a particular tract counts as personal-use property or as an investment, and what that means for a loss on it, depends on how it was held and used, which is a question for a CPA.
Do the 2025 capital gains rates apply to a land sale in a later year?
Not automatically. IRS Topic 409 gives its rates and thresholds for taxable years beginning in 2025: most net capital gain no higher than 15 percent for most individuals, some at 0 percent and 20 percent above the thresholds. Later years can carry different figures, so current numbers come from the IRS or a CPA.
Is capital gains tax the only federal tax on a large land gain?
Not necessarily. Beyond the capital gains rates, the IRS says individuals with significant investment income may be subject to the net investment income tax. Whether it reaches a given seller depends on that seller's whole return, so a CPA runs that calculation.
Where this page's facts come from
Every rule, office and figure above traces to one of these. Rules change; check the office before you act on one.
- Topic 409, Capital gains and losses (tax years beginning in 2025) Internal Revenue Service
- Topic 703, Basis of assets Internal Revenue Service
- Topic 701, Sale of your home Internal Revenue Service
- Publication 523, Selling Your Home: vacant land adjacent to the home Internal Revenue Service
- Va. Code 58.1-322, Virginia taxable income of residents Virginia General Assembly
- Va. Code 58.1-320, imposition of tax on individuals Virginia General Assembly