Capital Gains Tax on Selling Vacant Land, State by State

In 2026, capital gains tax on selling vacant land runs 0 to 20 percent federally, plus 0 to 5 percent from your state. Which end of that range you land on depends on three things: how long you held the parcel, how you got it, and which of the nine states it sits in. The state layer is the part almost nobody prices in advance.

The federal bill arrives in three layers

The IRS collects on a land gain in three separate passes, not one. There is a holding-period test, then a rate bracket, then a possible surtax on top. Most sellers know the middle layer and miss the other two, which is where the surprises live when the closing statement finally lands.

The first layer is time. IRS Topic no. 409 puts the line at more than one year: hold the parcel longer than that and the gain is long-term, taxed at the preferential rates. Sell at eleven months and the same profit is short-term, taxed as ordinary income at your regular bracket. On a $120,000 gain that single distinction can swing the federal bill by tens of thousands of dollars, and it turns on a date you control.

For tax year 2026, the second layer is the bracket. Revenue Procedure 2025-32 sets the long-term capital gain breakpoints at $49,450 and $545,500 for single filers, and $98,900 and $613,700 for married couples filing jointly. Below the first figure the rate is zero. Between them it is 15 percent. Above the second it is 20 percent. Those thresholds count your total taxable income, gain included, so a large land sale can push a modest-income seller from the 0 percent band into the 15 percent band in a single transaction.

A 3.8 percent surtax forms the third layer. The net investment income tax applies once modified adjusted gross income passes $200,000 for a single filer or $250,000 for a joint return. Gain on investment land counts as net investment income. Those thresholds have never been indexed for inflation, so they catch more sellers every year, and a one-time land sale is exactly the kind of income spike that trips them.

What your state takes in 2026

Alabama and Tennessee tax the identical parcel completely differently. None of the nine states we buy in gives capital gains a separate preferential rate the way the federal system does, so in most of them a land gain is simply ordinary income. The spread across those states still runs a full five points.

Tennessee, Texas, and New Hampshire take nothing. Texas and Tennessee levy no individual income tax at all, and Tennessee’s Hall income tax on interest and dividends was fully repealed in 2021. New Hampshire deserves a footnote here, because most tax content gets it wrong. The state’s Interest and Dividends Tax was repealed effective January 1, 2025, which was a real change, but that tax only ever reached interest and dividend income. It never touched a capital gain on land. A New Hampshire land sale owed zero state tax before the repeal and owes zero now.

Arkansas is the genuine outlier among the states that do tax gains. Under Ark. Code Section 26-51-815, 50 percent of a net capital gain is exempt from Arkansas income tax outright. The top bracket is 3.90 percent, so the effective rate on a long-term land gain is about 1.95 percent, less than half of neighboring Georgia’s. Arkansas quietly gives land sellers the best deal of any taxing state on this list, and the headline bracket hides it completely.

That 1.95 percent is a figure we calculated, not one you will find published. Arkansas prints its brackets in one place and its capital-gain exemption in another, and no state table we could locate multiplies the two together for a land seller. The same is true of the dollar column in the table above: we took each state’s own 2026 rate, applied it to a single identical $120,000 gain, and ranked the results. Building that comparison meant pulling nine separate primary sources, because no single publication carries all nine states’ current treatment in one place.

Louisiana, North Carolina, Michigan, and Georgia all run flat rates, and two of them moved this year. Louisiana went to a flat 3 percent for taxable periods beginning on or after January 1, 2025, repealing its graduated brackets. North Carolina’s final phasedown step took the rate to 3.99 percent for taxable years after 2025. Michigan holds at 4.25 percent under MCL 206.51. And Georgia dropped to a flat 4.99 percent for 2026, per the Georgia Department of Revenue. That last figure is worth checking against whatever source you last read, because several widely-cited 2026 rate tables still show Georgia at 5.19 percent. Alabama, with a graduated schedule topping out at 5 percent, is the most expensive state on this list for a land seller.

Your basis decides more than your bracket

Under IRC Section 1014 and Section 1015, how you acquired the land sets your basis, and basis is the number subtracted from the sale price to produce the gain. Sellers focus on rates, but a basis error changes the taxable number itself, not just the percentage applied to it. Three acquisition paths produce three different answers.

The Internal Revenue Code branches at the first step here and never merges again, so work the question in this order. How did the land come to you? That single fact selects the Code section, the Code section sets the basis, and the basis sets the gain the rates are then applied to. Sellers who start at the rate table are solving the last step first.

The IRS starts a purchased parcel at cost basis: the price you paid, plus capitalized improvements like a survey, a well, road work, or a perc test, plus closing costs you did not already deduct. Owners routinely forget the improvements, and every forgotten dollar is a dollar of phantom gain. Old receipts and settlement statements are worth digging for, because on a parcel held twenty years the improvement stack can run into five figures.

Under IRC Section 1014, inherited land takes a stepped-up basis: fair market value on the date of death, regardless of what the decedent paid. A parcel bought for $8,000 in 1974 and worth $140,000 when the owner died passes to the heirs with a $140,000 basis. All of that prior appreciation is simply erased for tax purposes. This is why heirs who sell within a year or two of a death frequently owe almost no federal capital gains tax, and it is the single most valuable rule in this article for anyone who inherited a tract. If several heirs share the parcel, our post on heir property laws across the states where we buy covers who has authority to sign.

Under IRC Section 1015, gifted land is the trap, because basis carries over from the person who gave it to you. A parent who deeds forty acres to a child during life passes along their own decades-old basis, and no step-up ever happens. The same forty acres transferred at death instead of during life could save the family tens of thousands in tax. Sellers are often shocked by this, because a lifetime gift feels generous and identical to an inheritance right up until the tax is calculated.

The home-sale exclusion almost never covers raw land

The $250,000 and $500,000 exclusion that shelters profit on a primary residence is the rule sellers most often assume applies to their land. It usually does not. Three of the ten pages currently ranking for this topic are about this exception, which tells you how many people go looking for it.

Treasury Regulation 1.121-1(b)(3) sets out the only path. Vacant land qualifies for the exclusion when four conditions all hold: the land is adjacent to the land containing the dwelling unit of your principal residence, you owned and used the land as part of that residence, you sell the dwelling in a qualifying sale within two years before or two years after the land sale, and the other section 121 requirements are otherwise met. Miss any one of the four and the exclusion is gone.

Read those four conditions against a Tennessee hunting tract and the answer is almost always no. A tract two counties away is not adjacent to your house. Forty acres you inherited and never lived on was not used as part of your principal residence. A lot you have held for twenty years while living elsewhere fails both tests at once. The exception exists for a suburban homeowner selling the side yard along with the house, and that is very nearly the only fact pattern it fits.

Three ways to spread or defer the gain

Three provisions of the Internal Revenue Code change the bill without changing the price. None of them is exotic, and all three are worth raising with a tax professional before signing rather than after closing. Each works by moving gain across time or into other property rather than eliminating it.

A like-kind exchange under IRC Section 1031 defers the entire gain into replacement real estate. Raw land held for investment or for business use qualifies, because since 2018 the provision covers real property only, and land is real property. The deadlines are unforgiving: 45 days to identify replacement property and 180 days to close, with a qualified intermediary holding the proceeds the whole time. Land you hold primarily for resale as a dealer does not qualify.

An installment sale under IRC Section 453 spreads the gain across the years you actually collect payments. Instead of recognizing $120,000 in one tax year and jumping two brackets, a seller carrying paper on the parcel recognizes a slice annually. Done deliberately, that can keep a seller inside the 15 percent band, or under the $200,000 net investment income threshold, in every year of the note. The tradeoff is real: you are now the lender, and you carry the buyer’s default risk on land you no longer own.

The plainest lever is the calendar. Crossing the one-year holding line converts ordinary-income treatment into long-term rates, and on a large gain that is usually the biggest single dollar swing available. A seller at month ten with a signed offer is often better served pushing the closing than accepting a slightly higher price now. We flag this whenever a seller tells us they bought recently, because it costs them nothing to wait a few weeks and can save five figures.

The same gain, three states, three different checks

Numbers make the spread concrete. Take a single filer with $60,000 of other taxable income who sells a rural tract for a $120,000 long-term gain. The federal math is identical no matter where the land sits, and only the state line moves.

Federally, the $120,000 gain lands above the $49,450 zero-rate ceiling and well below the $545,500 top breakpoint, so it is taxed at 15 percent, or $18,000. Modified AGI of roughly $180,000 stays under the $200,000 threshold, so the 3.8 percent surtax does not apply. Push the same sale to a $200,000 gain and both of those answers change, which is why the size of the parcel matters as much as its location.

In New Hampshire, Tennessee, or Texas, the state adds nothing and the total bill stops at $18,000. In Arkansas, the 50 percent exemption leaves $60,000 taxable at 3.90 percent, adding $2,340 for a total of $20,340. In Alabama, the full gain is taxed at 5 percent, adding $6,000 for a total of $24,000. Same land, same price, same federal treatment, and a $6,000 difference in what the seller keeps. That gap is larger than most of the closing-cost line items sellers spend their energy negotiating, and our nine-state per-acre value comparison shows how quickly a mid-size tract reaches gains of this size.

What we see when sellers reach closing without a basis number

Perspective Properties buys land in nine states, and the pattern we run into most often is not a seller who owes too much tax. It is a seller who has no idea what their basis is, two weeks before a closing, on a parcel that has been in the family since the 1960s.

A 1978 warranty deed and a 2019 judgment of possession point at completely different basis rules, so we read the chain before we make an offer and note how title came to the current owner. When the chain shows an inheritance, we tell the seller to find the date-of-death appraisal or the estate inventory, since that document usually establishes the stepped-up figure. When the chain shows a lifetime gift between family members, we say so early, because that is the case where the tax bill is largest and the seller is least expecting it.

Louisiana adds a wrinkle worth naming, since it is the state where our own company is registered. Under LA Civil Code article 890 a surviving spouse can hold a usufruct over the decedent’s community share while the children hold naked ownership, and a sale needs both to sign. That split also determines who reports which portion of the gain, a question we see handled incorrectly more often than any other title issue in the state. Sellers working through this should start with our Louisiana land-selling guide, which covers succession and parish recording in more depth.

Christian Smith is Managing Partner of Perspective Properties LLC, which buys land directly from owners in nine states and has worked through the basis and title questions above on parcels acquired by purchase, by succession, and by family gift. That experience is transactional, not advisory: filing positions belong to a CPA who can see your whole return, and we say so to every seller who asks us what they will owe.

A Perspective Properties quote is the simple part: a fair cash offer in 24 hours, offers valid for 7 days, closings in as little as 14 days on clear-title parcels, and no commissions or repairs taken out of the number we quote. If you want to see what your parcel would bring, request an offer or read more about our team first.