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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29953
Experience:  Taxes, Immigration, Labor Relations
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What would the tax rate be on the sale of a farm totaling

Customer Question

Customer: What would the tax rate be on the sale of a farm totaling 5,000,000?
JA: Thanks. Can you give me any more details about your issue?
Customer: Farm held for 58 years. Being rented out. Not farmed by owner.
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Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

The sale of a business (including a farming business) usually is not a sale of one asset.

Instead, all the assets of the business are sold.Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.

When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade.

The gain or loss on each asset (or a group of similar assets) is figured separately.

Expert:  Lev replied 1 year ago.

.

The sale of capital assets results in capital gain or loss.

The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction.

The sale of inventory results in ordinary income or loss.

The sale of self-created intangible assets is taxed as ordinary income.

Liabilities assumed by the purchaser is treated as cash payment.

Generally, both the purchaser and seller must file Form 8594 and attach it to their income tax returns when there is a transfer of a group of assets that make up a trade or business and the purchaser s basis in such assets is determined wholly by the amount paid for the assets.

So - we need to start with a list of assets - and will need to assigned a sale price to each asset - as agreed between parties.Then - we will determine the gain or loss on each asset separately and separately will determine how that gain or loss is treated.

To calculate the gain separate for each asset - we should take (assumed sale price) MINUS (adjusted basis) = gain

Here is the form to use

http://www.irs.gov/pub/irs-pdf/f8594.pdf

For the real estate - we need to know your adjusted basis - so we may estimate your gain or loss.

The gain on real estate is taxed at reduced long tern capital gain rate - for your income level - it will be partly 15% and partly 20%.

If you briefly describe assets, their selling prices and basis - we may verify the gain and how that gain is taxed.