What is Land Value?
Land value is a term used to describe the current value of a piece of real estate. Value of this type is increased when improvements are made on the property, such as upgrading any dwellings or adding features to the landscape that are considered valuable and desirable. Determining the land value is important when planning on selling the land, as well as in the calculation of land value taxes that are assessed by local jurisdictions. Knowing this total value is also helpful when considering using the property as collateral for a loan.
Depending on local laws regarding taxation, there are several factors that may be important to the task of determining land value. In many areas, the intended use of the property makes a difference in how taxes are assessed. For example, if the property in question serves as the main home for the owner, it may be taxed using a schedule that is different from property that is held as an investment or serves as a weekend home. Often, the size of the property, as well as where it is located, will also make a difference in how the value of the real estate is determined.
Capital improvements to the property will also have an impact on the land value. This includes adding on to existing structures, upgrading heating and cooling systems, or paving walkways or driveways. In some areas of the world, adding amenities like outdoor pools, sports courts, or even a pond will be considered a capital improvement for tax and resale purposes.
When selling property, the selling price is typically based on the current land value, and not the purchase price that was originally paid for the land. Assuming that the property has appreciated in value since the time it was acquired, the sale price may be sufficient to constitute a capital gain. In this scenario, the seller would be responsible for paying any type of capital gains taxes that were required by the local jurisdiction.
It is important to note that land value can actually decline over time. This is often the case when the area where the property is located becomes undesirable to buyers. Even if significant improvements were made over the years, they may not be enough to offset the drop in what type of sale price the property could command, resulting in the owner selling the property at a loss, with no capital gains earned from the venture.
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