Tax Loss = Tax Refund
(This article is written for informational purposes only. I am not a CPA. I am not an attorney. Consult your tax advisor if you have any questions about the content of this article.)
Many of these communities were created in the 1950s and 60s. At that time, they were purported to be in the path of progress. Many of the folks who purchased land here, during that time, believed that these areas would soon grow, expand and become even more valuable. Because of this, many of these buyers paid large sums of money to purchase land in these areas.
Today, decades later, we know that no significant growth has occured in these areas, and the property values today are just a fraction of what they were perceived to be when these areas were first offered to the public.
The result of this has been that nearly everyone who bought in these areas is now selling their land for significantly less than they paid 30+ years ago. Because this loss is just now being realized, at the time of the sale of the property, this loss could offset (or reduce) some taxes you would have otherwise had to pay on your income.
If you live in a state which imposes a State Income Tax, in addition to the Federal Income Tax, this could mean an even larger tax deduction for you. As stated above, be sure to consult your tax advisor about this topic, but in many of the cases I have been involved in, where we purchased land from sellers who took a large "paper loss," they have mentioned to me that their tax advisor has allowed the loss and they saved significant amounts on their tax return.