Do You Pay Taxes on Cemetery Plots?

Property and Sales Tax Implications

The tax treatment of a cemetery plot begins with its purchase and ownership. Owners of real estate receive an annual property tax bill, but this is an expense cemetery plot owners can expect to avoid. Land used for burials is granted a special tax-exempt status by local and state governments, meaning no yearly property taxes are assessed on individual plots. This exemption is often tied to the cemetery’s ownership, as many are operated by nonprofit or municipal entities not focused on profit.

While property taxes are not a concern, sales tax at the time of purchase may apply. The application of sales tax depends on how a jurisdiction classifies the transaction. Some authorities view the purchase of interment rights as acquiring tangible personal property, making the sale subject to sales tax. Conversely, other jurisdictions classify it as a real property transaction, which is exempt from sales tax. A buyer should review their purchase agreement, which should itemize the total cost and any applicable taxes.

Income Tax from Selling a Cemetery Plot

If you sell a cemetery plot, the transaction has federal income tax consequences because the plot is a capital asset. Profit from selling it for more than you paid is a taxable capital gain. If you sell it for less, you realize a capital loss, which is not deductible for this type of personal-use property.

This calculation starts with the cost basis, which is the plot’s original purchase price. The basis can be increased by certain expenses, creating an adjusted cost basis. For example, the cost of capital improvements, such as a perpetual care fund added after the initial purchase, could be added to your basis. Routine maintenance fees are not included.

To determine your capital gain or loss, you subtract the adjusted cost basis from the sale price. For instance, if you purchased a plot for $3,000 and later sold it for $5,000, you have a $2,000 capital gain. This gain must be reported to the IRS on Form 8949, “Sales and Other Dispositions of Capital Assets,” with the result carried over to Schedule D of your Form 1040.

The tax rate applied to the gain depends on how long you owned the plot. If owned for more than one year, it is a long-term capital gain taxed at lower, preferential rates. If you owned the plot for one year or less, the gain is short-term and is taxed at your regular, higher income tax rate.

Deductibility and Estate Considerations

Many buyers wonder if the cost of a plot from a nonprofit cemetery is a tax-deductible charitable contribution. The Internal Revenue Service, however, views this transaction as a purchase of goods and services, not a donation, because you receive interment rights in exchange for payment.

While the purchase is not deductible, a separate, voluntary contribution to a qualified nonprofit cemetery may be. For a donation to be deductible, the funds must be irrevocably dedicated to the care of the cemetery as a whole and not for the upkeep of a specific family plot.

Upon the owner’s death, the cemetery plot becomes an asset of their estate. For federal estate tax purposes, the plot is included in the decedent’s gross estate at its fair market value on the date of death. Fair market value is the price at which the plot would sell on the open market, often determined by the current prices of similar plots in the same cemetery.

A bequest of the plot to a nonprofit cemetery is not a deductible expense for the federal estate tax return. The rules for estate tax deductions are different from those for income tax charitable deductions.