Investment Property: Factor Taxes And Location When Buying Land

Added February 20, 2009 by Ilyce R. Glink

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Summary: If you're thinking about buying investment property, think about the property taxes you may have to pay as well as the location of the land when you make your purchase. You don't want to buy investment property with high taxes that's in an undesirable location. You must also think about the future of this investment property, whether the taxes may rise and how the surroundings of the location will change as the years go on.

Q: My wife and I are considering purchasing some raw land for investment purposes. Can you give me any suggestions, things to look for, and whether or not we will be able to write off the interest (tax form 4922 ?).

A: The same things apply for raw land as for any investment/property purchase: Location, location, location and then price. You have to figure out the future use of the property, how much it will cost you to hold it, and when you will sell or build. Typically, I don't suggest buying raw land unless you intend to build on it within the next 6 months to a year, because things can change. But if it's simply an investment, then that time line can be extended. But work it out ahead of time, and consider all of the pitfalls (does the land have environmental contamination that would be expensive to remove; flood plain; will a road be built near, on or next-to the property, etc.).

As for writing off the interest, you may do that as well as write off the cost of property taxes and other expenses in maintaining the property. If there is income (like grazing rights), you'd offset the income against the expenses.

Consult with your tax advisor for more details. Good luck!

Jan. 1, 2004.

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