Father gifts farm land to child who sells it the same year. IRS FORM 4797 table shows it to be reported in Part 1,. Would this be considered Capital gain and would it be section 1231 property??
-
-
1231
Yes, 1231, form 4797 part 1, basis would be lesser of FMV or donor's basis. See pub 225 chapter 9. -
Whoa ... not so fast. Was the farm land actually used by the son in the operation of a farm? If so, then yes, the sale is reportable on F-4797. But that form is only used for reporting sales of business assets. If the land was held by the son as investment property, then it was a capital asset in his hands, and its sale it reportable on Schedule D (F-1040).Roland Slugg
"I do what I can."Comment
-
long-term
The farm was owned by parent for 30 years and farmed the entire time. Land was appraised and sold for FMV. I dont think the son had the land long enough to farm it, but it would qualify for long term property and capital gains tax, right? So the outcome would be the same if reported on D or 4797????
thank youComment
-
Donee takes the donor's holding period. However, you need to check out Transactions Between Related Parties in Pub 17, Chapter 14 and the applicable IRS Code Sections. You don't indicate whether there were improvements on the land, such as barns, etc. which may have been depreciated.Last edited by Burke; 12-30-2013, 11:49 AM.Comment
-
Related parties?
The father gifts the land to the son. Yes, it is a related party but so are the majority of gifts. People don't generally gift things to strangers.
Father's basis is son's basis but be sure to see if there were any step-up in basis occurrences along the way. Perhaps the wife passed away triggering a step up or down.
Gain is a gain, related party or not.
Son's intent would be a determining factor in whether it is a farm or an investment.Comment
Comment