Tobacco buyout basis

[JoshinNC]

If a TP purchased a tract of land prior to the tobacco buyout specifically for the purpose of getting the rights to the attached tobacco quota would the purchase price of the land be used as basis for the buyout payment? If not, would any part of the land purchase price be allocated to the basis of the buyout payment?

Also, if TP owned land and was required to clear the land in order to obtain a quota for the land would the clearing costs be basis for the quota?

TP took no basis deduction in determining gain on buyout on first two returns and I want to fix it now before the year is "closed".

[glgillis]

You cannot take the purchase price as the basis since they will still have the land after the ten year buyout period ends and it will obviously still have value. What could the quota have been bought for if bought separately from the land? I don't know about NC, but in Ky, they were selling for 2.50-3.00/lb prior to announcement of the buyout. Find out from a local farmer, realtor, or ag agent. You could then use that as a basis, and assign the rest to the land. UK Ag Economics people suggested using 2.00/lb for long held quotas that were a part of an original farm purchase. A suggestion, mind you-not an IRS approved formula. They did , though, publish some extensive info showing how they arrived at that figure, and I did use it in a few situations. I guess if any are ever audited, we'll see if it flies.

Land clearing for crop production is a routine part of farming. If not otherwise deductible, it would add to land basis.

[JoshinNC]

Here's a link

to an informative article that I found that gives some guidance (though not official) on how to treat allotments that were included in the land purchase price.

http://www.burleytobacco.com/Portals/0/Quotabasis.pdf