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Unearned Increment

By on November 11, 2018

Unearned increment on property refers to an increase in land value over time that is not a direct result of actions taken by the owner.

Such value appreciation is often caused by the general improvement of conditions in the area, increase in general demand caused by growth in population, favorable master plans, etc.

You need to know: What lenders hope you never learn about mortgages

If an individual or entity buys land 5 years ago at $1,000 per acre and sells it today at $3,000 per acre when no improvements have been made on it, the transaction would effectively let the seller realize an unearned increment value of $2,000 per acre.

Some people argue that land owners should be taxed for such gains.

But in real world practice, governments usually give tax breaks for long term capital gains. This encourages instead of discourages it.


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