Should I sell my vacant land now or hold it for it to go up in value?

What does it cost me to keep land each year?

Add these up for your parcel. The total is what holding costs you, before any growth in value.

• Property tax. Check your latest bill. If it is unpaid, interest and penalties grow, and the county can sell a tax lien or the land itself. See selling land with back taxes and your state page, for example Florida back taxes.
• HOA or POA dues. Many lot subdivisions charge yearly dues and special assessments. Under the recorded covenants and state law, unpaid dues can become a lien on the lot.
• Liability insurance, if someone could get hurt on the land.
• Mowing, clearing or code enforcement fines, which some counties and associations require on lots.
• Loan interest, if you still owe on the land.
• What the money could earn elsewhere. Money tied up in land cannot pay off debt or earn interest.

How do I know if holding will pay off?

Use simple math. Say your land is worth $30,000 today and costs $900 a year in tax and dues. Over 5 years you would spend $4,500. The land would need to rise to about $34,500, or about 3% a year, before you come out ahead of selling today, and that ignores what the $30,000 could earn elsewhere and the cost to sell later. This is an example, not a forecast.

Then ask whether that growth is likely. Growth usually follows roads, water and sewer lines, jobs and new homes. If none of those are moving toward your land, past prices are not a promise. The table above shows that median land prices fell from a year earlier in several states in recent market data. See state pages such as Georgia land prices and what is my land worth.

When does it make sense to hold land?

Holding is a fair choice when most of these are true.

• You can pay the taxes and dues every year without strain.
• You have a plan: to build, to give it to family, or to use it for farming, hunting or timber.
• Growth is coming close: a new road, water or sewer extension, a large employer, or new subdivisions nearby.
• The land earns money, such as a farm, grazing, hunting or cell tower lease, or a timber stand that is still growing.
• You are an older owner and plan to leave the land to heirs. Under IRS Publication 551, heirs usually take a basis equal to fair market value at death, which can reduce their tax on a later sale. Talk to a tax adviser.

When does it make sense to sell land?

Selling is often the better choice when several of these are true.

• The yearly costs strain your budget, or back taxes are piling up.
• You have no plan to use the land and live far away from it.
• Co-owners or heirs disagree, and holding only delays a hard decision. See co-owners and heirs selling land.
• The land has a problem that will not fix itself, such as no road access or a title issue, and you do not want to pay to fix it.
• You would use the money for something with a better return, such as paying off high-interest debt.
• You have held it more than one year, so a gain would be long-term under IRS rules, which is usually taxed at a lower rate than a short-term gain.

Why is land so hard to sell?

Land has fewer buyers than houses, and more listings compete for them. In recent market data, the median state had about 16.5 months of land listings for sale, and Texas had about 47. Other reasons:

• Fewer buyers can pay. Many lenders treat land loans as riskier than home loans and often ask for bigger down payments, so many land buyers pay cash.
• Each parcel is different, so there are fewer close sales to set a price, and buyers are cautious.
• Buyers have to check access, utilities, zoning, septic and flood zone before they commit, which takes time.
• Land sells slowly. Average days on market ran from 107 to 181 days in the 10 states in the table.
• Title problems, back taxes and many heirs scare off retail buyers and lenders.

Why is land so cheap in some places?

The price of land follows what a buyer can do with it. Land is cheap where a buyer can do less with it, or where there is more of it than buyers want.

• Far from jobs, stores and services.
• No legal road access. See landlocked property.
• No power, water or sewer, or soil that will not pass a septic test.
• In a flood zone or wetland. Check the FEMA Flood Map Service Center.
• Too small, steep or oddly shaped to build on, or limited by zoning or deed restrictions.
• Large supply. Some areas have old lot subdivisions with many more lots than buyers.
• Large tracts sell for less per acre than small lots. That is why a per-acre median, like the ones in the table, can look high next to a 40-acre rural tract.

Are there tax points to know before I decide?

A few. A gain on land held more than one year is long-term (IRS Topic 409). If you sell investment land at a loss, you can deduct up to $3,000 a year of net capital loss against other income ($1,500 if married filing separately), and losses on personal-use property are not deductible. Owners of unimproved and unproductive land can elect each year to add property taxes and loan interest to the land's basis instead of deducting them (Treasury Regulation 1.266-1). In Texas, land with an agricultural or timber valuation can owe a rollback tax for the 3 prior years when its use changes. See assessed value vs market value.

General information, not legal or tax advice. Ask a tax professional how these rules apply to you.