Land and Its Uses

Editor’s Note: This article first appeared in the August 1972 issue of the Real Estate News Observer.

There are, of course, many uses for land, and of land, and all competent exchange counselors know that there are several formulas to be applied in handling land unencumbered or “free and clear.”

It has been found, during the past few years, that when someone has an equity in a small income property and wishes to exchange up into a large income property, it has not been very easy to do directly.

In other words, a simple two-way exchange has become increasingly hard to do when that situation exists.

One of the answers to that has been to put the equity of the smaller income property into inexpensive land, perhaps along with some paper, and then use the inexpensive land, adding paper if necessary, to go into the larger income property desired.

Another popular technique to use when a piece of land has been held for 25 years and thus has a very low base, rather than have to pay heavy capital gains tax, is to sell it off; we recommend people keep land with low bases and offer to create some paper against it.

Using this paper to get what is wanted is an application of the formula known as the “Creation of Wealth.”

This has to be done very carefully and properly, mechanically, in order to have it be a tax-free maneuver, and so, the formula has to be well understood in order to use it.

This is a formula, however, that the writer has been using for 20-some years and has found it very beneficial, easy to use, and easily understood by clients when they know that its application can often save them lots of income tax payments.

Of course, one of the easiest things to do with land that people have held for appreciation is to tax-free exchange it into an income property where one can secure leverage, depreciation, etc.
Since no one is making any land anymore, land can go nowhere but up in price, and it’s the writer’s opinion that, even with today’s prices, the securing of cheap acreage and holding it is one of the best ways to offset the constant inflation that seems to plague our country.

And then, subsequently, in order to realize the gain through the inflation from year to year, make a tax-deferred, which we call a tax-free, exchange and enjoy the gain without paying any tax.

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