# Vacant land is typically viewed as a speculative investment. It produces no income, has ongoing expenses, and is only profitable if its market value increases in the future. Although this is all true, vacant land is not only an excellent hedge against inflation, but it also generates multiple tax benefits.

No Taxable Income

# The fact that vacant land does not produce income makes it an unattractive investment to many. For those who are looking to park capital and reduce their taxable income, banking land is an excellent strategy.

Deduction of Expenses

# Vacant land can be expensive to own. Expenses include property taxes, mowing and clearing fees, and management and accounting costs. These costs, reported on your 1040 Schedule E, can be used to offset passive income from other investments and reduce your total tax bill.

Benefits for Real Estate Professionals

# Real estate professionals, defined as people who work at least 750 hours per year in real estate activities and spend at least 50 percent of their working hours in the field, gain additional tax benefits. They can take their losses from the vacant land and apply it not only against other passive income but also against active income earned in the conduct of their real estate business.

Tax Deferred Growth

# Although values for land can fluctuate, investors who purchase it typically expect that it will go up in value over time. As the land appreciates, that equity sits in the land and is not turned into cash. Because of this, its growth in value occurs on a tax-deferred basis, since you will, or may, only have to pay taxes on it when you actually realize the increased value by selling it.

Tax-Free Sales

# By doing what is commonly called a 1031 Exchange, you can sell your vacant land, buy more investment real estate and not have to pay any capital gains taxes. In exchange for following a few rules regarding timing, doing some extra paperwork, and paying a third party a reasonable fee, 1031 Exchanges allow you to defer your gain until you cash out of real estate completely. Given that your basis steps up to fair market value when you transfer your real estate to your heirs, it is possible for you to never pay capital gains taxes on investment real estate such as vacant land.

via Tax Benefits of Investing in Vacant Land | eHow.com.