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Lev
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My mother inherited farmland and placed it in a trust with

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My mother inherited farmland and placed it in a trust with my brother as controller of the trust. She passed last December and the three heirs of her estate are my brother, my sister and myself. If we sell the farmland this year will capital gains be long or short, on the sale value, if sold before December of this year.
Ted
Submitted: 11 months ago.
Category: Tax
Expert:  Lane replied 11 months ago.

 

Hi, please don't shoot the messenger here, but less than year is short-term.
Also, there are issues with basis ... (IF the trust was irrevocable, the trust would have gotten a step-up in basis on the property - if the transfer happened as a result of of death, trough a testamentary trust, if the trust inherited the property, that is)
If the trust was gifted the property by your mother, the beneficiaries will get a carry-over basis (your mother's basis) in the property, as your receipt of it will be a deferred gift.
Can you give me some of those details?
Thanks
Lane
NPVAdvisor41492.827004294
Expert:  Lev replied 11 months ago.

Hi and welcome to Just Answer!

Different expert here and different answer.


Inherited property is ALWAYS treated as long term - not short term - and the capital gain will be taxed at reduced long term capital gain rates.


The issue in your situation - to determine the basis.
When your mother inherited the farmland - the fair market value of the property is her basis.
If the property was placed into an irrevocable trust - the basis will remain the same.
If however - the property was placed into revocable living trust - the basis would be the fair market value of the property at the time your mother passed away.
In any case - if the farmland is sold by the trust or distributed from the trust to beneficiaries and sold by beneficiaries - the gain (if any) will be taxed as a long term capital gain regardless of your holding period because that is an inherited property.

See instructions for reference - http://www.irs.gov/pub/irs-pdf/i8949.pdf.

second page - left column - Generally, if you disposed of property that you acquired by inheritance, report the disposition as a long-term gain or loss regardless of how long you held the property.

Let me know if you need any help.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22651
Experience: Taxes, Immigration, Labor Relations
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Expert:  Lane replied 11 months ago.

It IS correct, regarding the fact that basis is long term when property is inherited.

However, where this expert is completely wrong is in the assumption that we have enough details here to exclude the possibility that the trust itself may get the step up in basis, if the property is sold by the trust, rather than you, as beneficiaries.

If the trust is irrevocable, it is the TRUST that will get the step-up, and will only do so if the property was inherited by the trust ... If the property was gifted to the trust, what the beneficiaries will receive is a deferred gift with a carryover basis.

Again, you need to provide (1) what sort of trust (simple vs complex among other things) (2) How the property was conveyed to the trust and (3) Enough of the terms of the trust, to determine what the TRUSTEE has the power to do and cannot do

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