how avoid tax on land sale

[craignd]

Is there a good way to avoid capital gains on the sale of farm land? I inherited the farm from my parents so my cost was 0. I now want to sell land and am looking at being paid around $300,000. My wife and I make less than $72,500 a year. If I make a straight cash sale and collect $300,000 what taxes of any kind will I have to pay?

[BA Deere]

Find out what the "basis" was on the land when you inherited it, hopefully your lawyer took that opportunity to raise it to market value.  Then you might not have that much that will be taxable..  If your dad paid $400/acre, but when he passed away it might`ve been worth $5,000 and your lawyer locked that basis in and now, you sell for $8,000/acre, then $3,000/acre will be taxable. 

[hardnox]

You need to talk with an expert.

Your cost basis shouldn't be O if it went through an estate.

[hardnox]

If somebody botched the filings they can be amended but you'll have some costs and time associated with that.

Basis should be FMV at time of death.

That's a very nice feature of the Death Tax that undoubtedly helps more people than the charges above $10.5M hurt.

[hardnox]

In a hypothetical case with a very low basis you can sell on contract as CG rates are very low at smaller annual principal levels. Not much help if you're talking $millions but OK if you're talking hundreds of $thousands.

You need somebody who knows what they're doing to draw up that contract and you need a buyer who's for real. You don't really want to go through a default on it.

[craignd]

The land was transferred to my name when Dad retired, not at the time of death. Does that make a difference?

[hardnox]

You need an expert to weigh in but yes it may.

There should have been a gift tax return filed against the unified credit at that point. But it would go back to his cost basis, which may be low.

I don't know what the circumstances were so won't criticize.

As far as the contract sale goes, the attractiveness of the CG rate depends on your overall level of income. People with modest income can push a modest amount of principla through at little tax- high earners can pay up to 20% of the net gain.

Again, worth paying someone to find out definitively.

[hardnox]

Once again DO NOT take any action based on my opinion.

I don't know the property or the neighborhood but in general, a $300K piece of property would probably be a tasty little morsel for one of the megamillion dollar operations.

You might be able to get a fairly short term contract- maybe fully amortized in 5-10 years- and given the numbers you shared, still be fairly well advantaged tax wise.

Over that short of timeframe I'm also of the opinion that getting a 3-4% interest rate or such won't be that bad.

You'd probably be able to offer an attractive rate vs. valuation for tax purposes. An expert can fill you in on what the IRS will let you get away with.

On the opposite side you could also go for a higher interest rate with a longer term contract but if you go that way make sure you have a contract that makes the process clear if the property defaults back to you. Probably not the way you'd want to go.

[sw363535]

Excellent answers. Professional advice is worth the price. Lots of botched land titles and transfers out there.