CAPITAL GAINS ON INVESTMENT PROPERTY

Investment property includes raw land held for appreciation, rental housing, commercial buildings, retail, industrial, and other real property held for investment or business use rather than personal enjoyment. Property used primarily as a personal residence or held primarily for sale to customers as dealer inventory does not qualify for the same 1031 treatment even if it is otherwise real estate.

Property held for more than one year qualifies for federal long-term capital gains rates of zero, fifteen, or twenty percent, while property held one year or less is taxed as ordinary income at the seller's marginal rate. Massachusetts generally follows the same distinction, applying its flat rate to long-term gain and a higher rate to short-term gain.

No. Raw land is not depreciable, so a sale of undeveloped land does not generate unrecaptured Section 1250 gain the way an improved, depreciated commercial building would. This can make the tax profile of a land sale meaningfully different from an improved property sale even at a similar total gain.

Yes, provided both properties are held for investment or business use. The like-kind standard for real property is broad and does not require the relinquished and replacement assets to be the same property type, so a Boston, MA investor can exchange land into an improved building, or vice versa, and still qualify for deferral.

The surtax applies to a taxpayer's total annual income above a periodically adjusted threshold, and because it looks at total income rather than the sale gain alone, an investor with substantial other Massachusetts income in the sale year should consider how a large investment property gain might combine with that income before assuming the surtax will or will not apply.