Selling Your Land in North Carolina

If you decide to sell your land and/or buildings, you have several ways to accomplish this.

• Sell it on a contract for deed. A contract puts you in the position of a lender. As the contract payments are made, you include them in your taxable income over a number of years. By signing a contract for deed with installment sale reporting, you do obligate yourself or your heirs to paying the income tax on the gain. Selling on a contract can provide the buyer with a source of credit and terms he or she can afford. This method, however, obligates the buyer to pay you a lot of interest over the life of the contract. Interest you receive from the buyer is fully taxable to you. If you become a contract for deed holder, you assume the risk of default by the buyer. You may get your land back through forfeiture or you may be forced to foreclose on the party in default.

• Sell your land piecemeal as the buyer can afford to purchase it. Using this method, the buyer can apply all purchase money to principal and none to interest.
  
  Example: In 2003, a mother decides to sell a designated 10 acres to her son, Bill, for $10,000. In 2004, she sells another 5 acres for $5,500. In 2005, Bill has a good year and is able to purchase 15 acres for $16,000. Bill has acquired 30 acres in 3 years, has them paid for, and has no debt or further obligation to Mom. Bill may wish to enter into an "option to buy" with Mom for various parcels over a number of years. This would guarantee his right to purchase an entire 80 or 160 acres even though Mom may die.

• Consider a tax-free exchange. Exchanging like-kind property with your child can postpone the taxation of gain.
  
  Example: Assume you own a 160 acre farm worth $320,000 with a tax basis of $40,000. You exchange it even up for similar property worth $320,000. You now own the new property with a basis of $40,000. No income taxes are paid on tax-free exchanges if no money or unlike kind property is involved.