The following were submitted by prospective clients who are considering moving to Clallam County and had questions about a couple of items on my Vacant Land Checklist.
Chuck,
Your website is a wealth of info and very much appreciated. We are considering moving to Clallam County and making a vacant land purchase in the next 12-18 months. Your vacant land checklist is invaluable but I have come across some terms that I don’t understand. i.e.- “Buyer to assume open space tax designation or pay to have it removed. Seller will do a 1031 tax deferral exchange at seller’s expense.”
What does this mean and have I overlooked them on you website? Thanks again for such a great resource
You had two questions. The first was this statement: “Buyer to assume open space tax designation or pay to have it removed.” Here’s what that is referring to. Large lots of more than one acre can save property taxes by placing the excess acreage in tax exempt categories, such as “forestry” or “agricultural” and this can save a lot of property taxes over the years. But when the property is taken out of that tax exempt classification, all the taxes that would have been paid are due and owing immediately. Normally, people never plan on taking it out of the exempt classification. But if a property is sold, the buyer can opt to leave it in that exempt classification or take it out. If the buyer chooses to take it out for any reason, then that language would require the buyer to pay the back taxes now due, unless the seller agrees to pay those taxes out of their net proceeds. Most buyers will choose to leave it exempt, unless they plan to subdivide the property and sell it as residential lots. Of course, if the property cannot be further subdivided because of zoning or covenant restrictions, then it normally is a non-issue.
The other question you had involved this statement on the vacant land checklist: “Seller will do a 1031 tax deferral exchange at seller’s expense.” If you as the buyer are paying for the lot and planning to build your home on the lot, you should not get stuck with any costs associated with a 1031 tax deferred exchange that the seller may be doing. The seller may be trying to purchase another lot and defer capital gains taxes by doing a 1031 exchange. In a 1031 exchange there must be what is called a “Facilitator.” The Facilitator is like a closing agent, and he charges a fee for his services in helping the seller comply with the IRS tax code in the details of selling and re-purchasing real estate. This statement is used to protect you as the buyer from getting stuck with a fee from the Facilitator. That should be entirely the seller’s expense.
I hope this helps.
By the way, I also am editor of a local online newspaper you might enjoy. You can find it at:
Sequim-News.com
If there is any more I can do to help you, please don’t hesitate to email or call. I hope you do move here.
Last Updated on May 9, 2024 by Chuck Marunde
I’ve been looking for a checklist like this for buying land, and I was happy I found your site. Thanks for posting it, and thanks for all the work you put into doing this for total strangers like me who happen to be out here searching the Internet for help.