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Jon Andrews, Certified Public Accountant (CPA)
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capital gains tax on sale of farm land

Resolved Question:

My 6 siblings and I inherited the family farm over 15 years ago. At that time we put it into a corporation, with each of us holding equal shares. My brother and I have since bought out the other siblings. Because of estate purposes I would like to split the land. Since we each own equal shares and not actual acres, how can we split the LAND without causing tax problems (capital gains)?
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

When you bought out the other siblings, a capital gain situation occured already for them. They should have filed capital gains tax.

Unforutnately there is no way to transfer this property without incuring a capital gain unless it is sold at a loss or gifted.

You can defer capital gains if you do it as a like kind exchange.

Customer: replied 6 years ago.
Reply to Ed Johnson's Post: Is there anyway to convert the shares into acres? What we want is to end up with each sibling owning pieces of property instead of shares? How can we convert "shares" to actual land? If we value each parcel, can we divide it dollar value per dollar value. Or will one sibling have to buy the other and then resell the parcels back to the other? Does that make sense?
Expert:  Ed Johnson replied 6 years ago.

Dear Grammie,

To convert the shares to actual land, you have to dissolve the organzation. If you dissovle the organization, the land is distributed according to pecentage of shares.

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 3 other Tax Specialists are ready to help you
Expert:  Jon Andrews replied 6 years ago.

If you were to dissolve the corporation as discussed above, the corporation would be required to report the transaction as if the property had been sold at its current fair market value and then the corporation would be subject to tax on that gain (even though it did not actually receive any money).

A more complicated but less taxing transaction would be to do a corporate split (reorganization) with each corporation retaining the appropriate land parcels. That would put each of you in control (by virtue of corporate ownership) of the land tht you want without generating a current tax liability for either the corporation or you individually.

Without knowing the dollar values involved, it is impossible to tell whether your situation merits the time and expense that would be involved but, if it does, ou should consult a knowledgeable attorney and/or CPA to assist in developing the reorganization.

jon

Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience: I deal with all levels of tax planning and controversy - from the ordinary to the complex.
Jon Andrews and 3 other Tax Specialists are ready to help you

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Jon Andrews
Jon Andrews
CPA
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I deal with all levels of tax planning and controversy - from the ordinary to the complex.