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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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Tax Attorney Question: My father, who was a farmer in Iowa,

Customer Question

Tax Attorney Question:

My father, who was a farmer in Iowa, recently died. I understand that because he was a farmer, taxes are still owed on grain held in storage. What is the actual formula for computing my tax obligation when liquidating inherited grain commodities held in storage?

Is it this one:

(DOD VALUE X ROUGHLY 40%) + ((SALE VALUE - DOD VALUE) x CAPITAL GAINS RATE)
Submitted: 2 years ago.
Category: Tax
Expert:  John Gains replied 2 years ago.
Welcome! Thank you for your question.

Where did you get that formula?
Customer: replied 2 years ago.

I extrapolated it. The top bracket for me would be 44 percent combined. Is the formula incorrect?


 

Customer: replied 2 years ago.

Stephen E. Grizey :
Essentially, your father was in the business of farming and had he sold that grain in the ordinary course of business, it would have generated ordinary income.



Stephen E. Grizey :
Therefore, the gain (Income in Respect of a Decedent) is taxable as an asset of the estate for estate tax purposes (of course for 2012 his estate & lifetime gifts in excess of the annual exclusions (if any) would have to total $5,000,000. before any estate tax would be due.


 


Stephen E. Grizey :
However, for income tax purposes, whomever receives the proceeds of the sale of the corn will pay ordinary income taxes on 100% of the proceeds of the sale of the grain & soybeans less any business expenses of the farm.



Stephen E. Grizey :
In prior questions that you have asked here; the respondents have been advising you as if the grain & soybeans were investments rather than business inventory. That's why they were talking about a step-up in tax basis; that doesn't apply to your circumstances as I (and I guess your attorney) interpret the facts.

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