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Deceased Farmers wife's harvest


JackieCPA

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On 10/31/2019 at 8:43 AM, TaxPreparer said:

would this be considered an inherited asset sale on the Schedule D?

Although there are articles such as 3rd link above posted by bbstacker that suggest the surviving spouse in you situation is entitled to capital gains treatment,  I do not see the authority that allows it.  Reference is given to 1223(9) which refers to the holding period of inherited property but does not mention character of the income.

Although it is clear that capital gains treatment is allowed in cases where the crop is sold along with land, that is not the situation here.

In your situation, it appears wife is continuing the operation and is in the business of raising and selling crops.  I think there is a strong case that the IRS would include the sale on her Schedule F, offset by the stepped up basis at date of death.  However, I do not have an authoritative reference to back that up.

If on the other hand surviving spouse was to discontinue the operation by lease  or sell of the land I believe there would be a case for capital gains treatment.

On 11/1/2019 at 9:40 AM, TaxPreparer said:

Is it the same being there is no estate and it will be given to the wife and put on the joint tax return?

The term estate has different meaning, but in this case I believe the term applies to the assets and liabilities of the deceased and the distribution to heirs, which passed to surviving spouse.

 

Something else to keep in mind is that supplies ( seed.fertilizer, fuel etc) purchased  and held as inventory on date of death also get a stepped up basis and are deductible by surviving spouse if used in the farming operation and also deducted on the final Schedule F of husband.  See Backemeyer vs com.

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At the risk of being much more ignorant than the sources of the previous two posts, I might suggest something that could be easy.

If the harvest was sold in the same year as the year of death:

Report farm income and expenses on a joint return as if the decedent were still alive.  Easy.  Yes, I know technically an estate was created but even the IRS would appreciate not having to fool with creating a pass-through entity which does nothing for revenue or taxes.

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1 hour ago, Edsel said:

Report farm income and expenses on a joint return as if the decedent were still alive.  Easy.  Yes, I know technically an estate was created but even the IRS would appreciate not having to fool with creating a pass-through entity which does nothing for revenue or taxes.

If that is the case, you are not filing an accurate and complete tax return. 

You might also miss out on deductions for depreciation and items held as inventory on DOD as a result of stepped up basis.

Also incorrect reporting of SE income.

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On 11/1/2019 at 9:40 AM, TaxPreparer said:

Thank you,

Is it the same being there is no estate and it will be given to the wife and put on the joint tax return?

There might be a difference in how the income is reported on form 1041 by estate and Schedule F by surviving spouse who is now engaged in the business of raising and harvesting of crops.  In your case,  it appears the surviving spouse made a contribution of the unharvested crops to her farm operation and should recognize ordinary income in amount above the stepped up basis. 

She will also claim depreciation from stepped up basis of depreciable assets.

You will prepare two schedule F's, one for deceased husband and one for wife.  As mentioned previously, case law allows deduction for inventory items such as fuel, fertilizer and seed  at DOD on both returns.

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