Taxes are one thing everybody can agree they don’t like to pay, making it more likely you are interested in how to own land and not pay taxes on it.
Owning land and not paying taxes has been a dream for many people and it is possible to achieve. Taxes can add up quickly, especially if you have many properties or a high enough income. Instead, you should learn ways to avoid paying them legally.
A popular investment strategy is owning land and it is even more profitable when you can not pay taxes too. There are many ways to do this but we would recommend using depreciation on your property as a deduction as the best and most effective strategy to not pay taxes on your property.
If you want to avoid paying taxes while owning land, you will need to understand the different strategies that can be used. This is not a foolproof plan and you may need to consult a professional, but they can be an effective way to save some money on taxes. In this guide, we discuss every way you can own land and not pay taxes.
In many cases for those who own land, taxes can be an issue and present problems. This guide was created to provide you with legal methods to own land and not pay taxes by experts in the industry.
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How To Own Land And Not Pay Taxes
Land is a valuable asset and owning land can be very beneficial. But some taxes come with owning land too. They vary depending on the type of land and where it is located, but you can find ways to lessen or eliminate your tax bill too.
The process of owning land without paying taxes can be difficult but there are ways to make it happen to save some money. The best way to own land without paying taxes is by learning more about the laws and how they could apply to you.
We have discovered eight ways you can own land and not pay taxes. They are listed below with more details about how they work and what you can do to apply them to your own life to eliminate or decrease your taxes owed.
1. Use Depreciation To Your Advantage
One way to not pay taxes while owning land is through your income-producing rental property. This can be achieved through annual tax deductions known as depreciation and it applies to any land producing income through rentals from a tenant.
Income-producing property is usually defined as those properties that generate income by renting out the property or through the sale of the property. Depreciation is calculated based on basic wear and tear or deterioration that occurs on your property to impact the price.
The way this works is the depreciation counts against the income produced from your property causing there to be a net loss at the end of the year. This also includes other expenses like utilities and when added together the net loss eliminates your tax liability.
2. Borrow Money Against Your Home Equity
Home equity loans are a type of loan that allows people to borrow money from their homes to purchase a property. The interest paid on the loan is usually a deductible expense and can be used to reduce taxes owed.
When homeowners take out a home equity loan, they are borrowing against their current home's value and paying interest on that debt with the proceeds from the sale of their old house or other assets.
The interest paid on home equity loans can be a deduction, but it depends on the tax law in your state. In some states, you can only deduct the interest if you itemize your deductions.
You may also have to pay taxes on the amount of interest you receive back when you sell your home or refinance it. It is worth noting this strategy is more risky long term, but it is a potential option to consider if you want to avoid taxes.
3. Keep Land Vacant
If you keep your land vacant, you can qualify for different deductions that will reduce or eliminate your tax bill. To be eligible for these deductions, you need to learn how they work to ensure you will qualify.
For example, real estate dealers are known to buy one plot of vacant land and break the lot up in to small lots and sell them individually. This is a smart way to do it because all related expenses to get this done can be deducted.
Other deductions you can qualify for include interest, property taxes, and any type of maintenance fees like landscaping that was paid for. Be sure to itemize these deductions when doing your tax bill to get big savings.
4. Use Land For Agricultural Purposes
You can use homestead exemption and agricultural property tax exemptions on your property to avoid taxes in some US states. The exact criteria will vary based on where your land is located, but adjustments can be made as needed.
To learn the rules within your state, you will need to visit the government websites in the area to better understand the tax law. For example, New York requires you to pay the taxes you avoided from this exemption if your land is converted back to non-agricultural within 5 years after approval.
5. Qualify For A Disability Exemption
If you qualify for a disability, you can avoid paying taxes when owning land too. This is because the tax code treats land differently from other types of property. The same applies to veterans or senior citizens.
These exemptions are designed to lessen or eliminate your tax bill after age 61 and a majority of those who qualify are required to both own and live on the property. However, some exceptions can be made depending on the circumstances.
To qualify for this, you also need a household income under $40,000 to even be kept in consideration. This includes any tenants that may live there if the property is also used as a source of rental income.
6. Start A Non-Profit
If you have a non-profit, you can own land under this organization tax-free. It is required by US law in all 50 states and this is a common practice by many to avoid paying taxes on land because of the tax benefit your organization provides for the state.
The laws of a non-profit are a different story, but if the primary income of your business is through donations you may qualify to avoid taxes on the property owned by this organization. You can also make adjustments and acquire future property through your organization too.
This tax loophole is known as the Welfare Exemption and it has been in place since 1944. The best way to take advantage of this law is to consult with a tax professional who can help you legally implement this practice before the next tax season.
7. Charge The Tax Bill To A Third Party
When you own property and rent it out, you can avoid paying property taxes by making the third party pay it within their rent. That is a unique tactic used by many landlords to eliminate their tax bills and save money on their property.
This is a good idea if you have a lot of tenants who don't have to pay taxes on their income. If you are thinking about doing this, make sure that you are not breaking any state or federal laws by consulting with a professional to draw up the lease correctly.
By simply stating your tenant is responsible for the taxes, you can save a ton of money come tax season.
8. Buy International Property
There are many countries where you can buy the property and not pay any tax. These countries are considered tax havens for this purpose. You can also use this international property to set up another residency to lessen your tax burden.
But you should be careful where you opt to buy this property because some countries will have even higher taxes than the United States. In this case, you could be on the hook for double taxation by both the United States and that country.
Can You Avoid Paying Taxes Completely?
It is not impossible, but extremely difficult to consistently have a tax bill of zero every year without breaking the law. It requires professional help from people who understand accounting and the tax system to make it work.
If you were looking for a way to eliminate your tax burden, you would need to leave the country and move to international territory. By doing so, you could establish a residency somewhere else.
However, the United States still requires anybody with citizenship to pay taxes. But when you have a residency outside the country and do not live in the US it becomes much easier to avoid these taxes due to specific deductions that apply.
The most uncommon way to not pay taxes would be to renounce your citizenship. We do not recommend this because a United States passport holds plenty of weight across the world and this would make you an illegal alien in your own country. You would also have to pay a high exit tax bill when doing so.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling