Deceased Farmer-grain& Insurance Step Up

[gman]

Farmer dies and spouse continues operating throughout year. Spouse is told that all crop insurance proceedes and grain income will not be subject to tax to wife. I am clear on stepped up basis for equipment and livestock, but unsure about why former large accounting firm would tell her all income would be tax free.

Any help please? And maybe a sight to reference..

Thanks

[gman]

Any help

with this one???

[David1980]

Could be a case of lost in translation. What the accounting firm actually said versus what the client actually heard. I can't think of any reason the income wouldn't be taxxed either.

[gman]

Sure

The spouse was quite sure and said she asked the accountant multiple times about it.

They stated everything recieved a step up in basis, which I agreed with, but I was not sure about the grain that was sold after his death. Could it be that since they owned the grain, it recieved some basis and later when sold for approx same value, it would be tax free to wife.

What about crop insuance proceedes? She stated that accountant told her zero tax on that income alos?????

[Jiggers]

Depends

The spouse was quite sure and said she asked the accountant multiple times about it.

They stated everything recieved a step up in basis, which I agreed with, but I was not sure about the grain that was sold after his death. Could it be that since they owned the grain, it recieved some basis and later when sold for approx same value, it would be tax free to wife.

What about crop insuance proceeds? She stated that accountant told her zero tax on that income alos?????

1. Inventory that is "raised" normally doesn't get a step-up in basis. Grain is normally considered "raised". I deal with cattle farmers who raise calves for sale, and hay for their own feed. On the death of the taxpayer there is no step-up in basis for the "raised" calves nor the hay that was "raised" that is in the inventory.

2. The crop insurance proceeds would be taxable.

Maybe the attorney is assuming that an estate income tax return is being filed and the widow isn't reporting the income. that the estate is reporting it on a 1041. Then it wouldn't be taxable to the widow, just to the estate.

I would arrange a conference call with the attorney and ask for an explantion.

[gman]

Thanks

for your help..