Sale of asset

[KWF]

Taxpayer owns 4835 farmland. Taxpayer dies. Taxpayer's estate sells farmland.

Does estate initially report sale on form 4797 as a business asset, or form 8949 as capital asset?

[Roland Slugg]

It depends. You didn't say if the estate continued the decedent's rental of the land after his death. If it did, even for a brief period of time, the sale should be reported on F-4797. I would even use F-4797 if the estate did not rent the land but would have if it had the opportunity to do so. I would only report the sale on F-8949/Schedule D if the estate received no revenue from the land and didn't hold it as possible income property.

It might make no difference which form is used to report the sale. If there was a gain, net of costs to sell, it will be taxed as a LTCG regardless of which form is used. If there is a loss, however, and the land is properly treated as a business asset, then the loss will be an ordinary loss.

In any case the holding period is always long-term for assets acquired from a decedent, even if the estate owned it for less than one year.

[ATSMAN]

I would use 4797 if the estate managed the farmland after the owners death. In all my years dealing with family owned small business the estate has to "manage" some aspects before final disposition.