Farm Land Rental

[ericleve]

My client has a problem and I am completely stumped. They are retirees and receiving social security. They also have farm land they are receiving cash rent for, so it is going on Sch. E. The problem is there are not enough deductions to offset this farm income and 85% of their social security is being taxed now as well.

Are there any strategies I am missing to allow them any more deductions for this land? They are renting to a relative so there are no advertising or other management costs, very little insurance and property tax cost. They are taking the obvious deductions but I still think maybe I am missing something.

Or could they possibly structure this transaction differently to gain more tax benefit? I am really at a standstill with this and would appreciate the help.

[Burke]

I don't see any way they can gain "more tax benefit" currently unless they change either the ownership of the land or the income they are receiving from it, which they may not wish to do. I assume they own it jointly and don't itemize deductions. You don't say how old they are, who their heirs are, what their other income is, or at what amount the property is valued. If this income was eliminated, would they pay no tax on their SS benefit? Would the loss of income be worth the tax savings? Not likely. What are their plans for this property at their death? Would they be interested in a charitable remainder trust? Depending on what it is worth, the deduction would probably reduce taxes even if the SS was still reported at 85%. Keep in mind a charitable deduction would be limited to a percentage of AGI each year.