Dad sells farm to son undermarket. Because of circumstances due to death of Mom, (stepped up basis) Dad's basis in farm is more than what he received. No gain on home, but land is a loss, I think no loss to Dad. Almost considered personal. Buildings on farm generated a little gain. Dad got paid all in one year, so we're reporting in one year. Any comments or help on this situation?
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No Loss
I believe Father can claim the undermarket selling price to son, so long as this does not create a loss.
Example 1: Father's basis, included 1/2 stepped-up portion from wife, is $200,000.
Father sells to son for $300,000. FMV is $500,000.
Result: Father reports $100,000 gain on the sale. Son's basis is $300,000.
Example 2: Same as above, except father sells to son for $150,000.
Result: Father reports sale for $150,000, and cost is limited to $150,000. Disallowed loss of $50,000 attaches to son's basis. Son's basis is $200,000.
This may cover reporting on Father's reporting on his 1040. However, the next question would be "Does he owe GIFT TAX on the difference between the sale and FMV???" -
Possibly gift tax return, I guess, but nothing due. under 1m, nothing else gifted. Father giving the kid a chance to farm, without having to work two extra jobs to live.Comment
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