Land Sale with fully depreciated buildings

[Got2csun]

Clients in their 80's sold the farm in 07, kept several acres with family home on it. Had not farmed the land for 30+ yrs but received some token rent for use of land over the years. On the land sold is a rental (tenant) house fully depreciated probably by 1970. Unable to reconstruct basis except for a few appliances etc in the past few years. Also a barn that again was fully depreciated by 1970...Both were built by owners and they just do not recall what the basis was. What guidelines are used for dividing the sale proceeds. The contract with the purchaser of the land only states the sale is for x number of acres at a price per acre...nowhere in the contract is there mention of the structure. Of course all the lot dividing drawings show the structures. Thanks for any guidance. John (in NY where the sun is challenged to shine)

[ChEAr$]

secret to success

Clients in their 80's sold the farm in 07, kept several acres with family home on it. Had not farmed the land for 30+ yrs but received some token rent for use of land over the years. On the land sold is a rental (tenant) house fully depreciated probably by 1970. Unable to reconstruct basis except for a few appliances etc in the past few years. Also a barn that again was fully depreciated by 1970...Both were built by owners and they just do not recall what the basis was. What guidelines are used for dividing the sale proceeds. The contract with the purchaser of the land only states the sale is for x number of acres at a price per acre...nowhere in the contract is there mention of the structure. Of course all the lot dividing drawings show the structures. Thanks for any guidance. John (in NY where the sun is challenged to shine)

in accounting is always "Pro rate and allocate!"

The local taxing authorities tax digest or assessment will show relative values for
buildings and land. Total up each and figure the percentage of total for each then
apply that to sales proceeds.
Then report each asset sale separately on the 4797.
or 4797's. (grin

[Roland Slugg]

If it were me, I would try to get my clients to help me determine the original basis of that old rental house and barn, using estimates if necessary. Many T/Ps keep their tax returns their whole life, so maybe yours can find an old one where those bases are shown. If not, they should be able to help make reasonable estimates of their costs.

Since the buildings were fully depreciated, the allocation shouldn't make much difference, and perhaps none. You said the sale contract specifies only land, so perhaps no part of the selling price should be allocated to the buildings anyway. However, the buildings ARE there, so perhaps some allocation should be made, depending on their condition. If an allocation is made to the house and barn, that amount (or those buildings' original cost, if less) will then become §1250 gain.

[Nashville]

Wing It

The sun never shines at Ft. Drum until May. Only 6 weeks away!

My guess is that even at their advanced age, if you ask them, "How much do you have in that barn" they can tell you. Of course it will be in deflated dollars depending upon the date built. They might tell you $2000 for a structure that would cost $20,000 to replace.

For filling in the gaps I would use anything reasonable and unbiased. Although we're dealing with 1950s dollars, nothing has or ever will be "free." Take sec. 1250 on depreciation recapture to limit their tax rate to 25%.

No tax publication or official tax advisor will ever tell you to "wing it." That is improper advice. But there have been times when I have had to "wing it." Does that leave you in an indefensible posture in the event of an audit? You betcha! But remember that an auditor will have to arrive at his own assessment in the event he challenges you. He cannot simply assume zero for every basis question.