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We are selling a family farm which was gifted to us back in

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1987. We completed a...
We are selling a family farm which was gifted to us back in 1987. We completed a gift tax form and submitted it to the IRS with a value of $590,000.00. Can we use this as our base fromt he sale of property once we sell it. Example let's say we sell the property for $1,500,000.00 can we deduct $590,000.00 + the one time exclusion for married couples of $500,000.00 as well?
Submitted: 6 years ago.Category: Tax
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Answered in 27 minutes by:
4/8/2011
Tax Professional: Lev, Tax Advisor replied 6 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,162
Experience: Taxes, Immigration, Labor Relations
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LEV :

Hi and welcome to Just Answer!

LEV :

To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it.

Customer:

We already know this. We completed this and filed with the IRS back in 1987? My question is can we deduct this off the top from the sale of property?

LEV :

If the farm was used as your primary residence - yes - you may exclude from taxable gain - up to $500,000 for married couple.

Customer:

I am asking if we can exclude from the taxable gain of both --- the one time exclusion of $500,000 for married couples PLUS the gift value of $590,000.00?

LEV :

You may not exclude the value of the gift - you need to determine the basis - and may exclude the basis. The value of the gift and the basis are not same.

Customer:

how do I determine the basis?

LEV :

To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it.

LEV :

So far - we know its FMV at the time it was given to you - $590,000 - but we do not know other information.

Customer:

it was my understanding that is what we did and submitted to the IRS and they agreed there was no gift tax owed

LEV :

Ok - so there were not gift tax paid. The last thing - we need to know - adjusted basis to the donor just before it was given to you?

Customer:

not sure what your asking? what is the adjusted basis to the donor?

LEV :

If the donor purchased the property - his/her basis is a purchase price.

Customer:

we have nothing documented due to so long ago, however we believe it was approximately $15,000.00

LEV :

Was the property ever inherited?

Customer:

no it was gifted

LEV :

The basis should be adjusted by improvement expenses the donor had before 1987 - can you estimate that?

Customer:

okay, thanks for the info

LEV :

If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Increase your basis by all or part of any gift tax paid, depending on the date of the gift.


Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property.

LEV :

See for reference this publication page 9 - http://www.irs.gov/pub/irs-pdf/p551.pdf

LEV :

Also - you need to separate the farm into to parts - business part and personal part. You will claim $500,000 exclusion for personal part - not for business part.

LEV :

For your adjusted basis - you will add all improvement expenses you paid after 1987.

Lev
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