Today TaxMama hears from Gloria in Florida who wants to know. “My daughter inherited a small farm from her father last year and wants to sell it. What would her tax liability be?”
Aaah crystal ball time again.
As a bookkeeper, you should know that someone would need more information in order to give you a useful answer. But, I’ll try anyway. OK?
In general, when you inherit property, it gets a stepped-up basis at the date of death. In other words, for tax purposes, your daughter’s cost will be the fair market value (FMV) at the date of her father’s death. Or it could be the FMV on an alternate date up to 6 months later if that was designated on the estate tax return.
The basis (or tax cost) won’t change unless she’s made some improvements.
When she sells the farm, she can deduct all the commissions and selling costs from the sale price. Then deduct the basis. And she will have a profit or loss.
So, if she sells it soon after her father’s death, it’s quite likely that your daughter won’t be paying any taxes at all. In fact, she’s apt to have a loss, as a result of the selling costs.
And remember, you can find answers to all kinds of questions about inheritances and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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