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IS THIS TAXABLE


Marie

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Did the parents gift their farm to two brothers and file a gift tax return? Did each of the brothers gift cash to the third brother, each of the first two brothers filing gift tax returns if over the exclusion amount for that year? Is your client the third brother? Sounds like he received a gift.

You'll want to read all the documents. Follow the money. If the third brother actually had an interest in the farm at any time and traded his interest to his brothers for cash or received 1/3 of the profits or...

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It's a family farm, and only under extreme circumstances will it be sold.  Parents gifted farm to 2 sons and filed a gift tax return.  Value is below estate limit.  But the 2 brothers were to pay out a third of what it was worth to the 3rd brother.  They haven't done it yet, but 3rd brother is wanting to cash out, so the other two will go to the bank for a loan.  I think it is a gift, but do the 2 brothers file a gift tax return on the money they gave to the 3rd?

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3 minutes ago, Marie said:

It's a family farm, and only under extreme circumstances will it be sold.  Parents gifted farm to 2 sons and filed a gift tax return

. . . . . . . . . . . . . . . . . . . . . . . .  But  I think it is a gift, but do the 2 brothers file a gift tax return on the money they gave to the 3rd?

We can't be in the prediction business, sometimes the unexpected happens i.e. one brother has serious health problems and can't farm anymore

It appears that the 2 brothers would have to file gift tax returns.

The awkward way this was handled, the interest on the loan probably wouldn't be deductible.

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1 hour ago, Marie said:

It's a family farm, and only under extreme circumstances will it be sold.  Parents gifted farm to 2 sons and filed a gift tax return.  Value is below estate limit.  But the 2 brothers were to pay out a third of what it was worth to the 3rd brother.  They haven't done it yet, but 3rd brother is wanting to cash out, so the other two will go to the bank for a loan.  I think it is a gift, but do the 2 brothers file a gift tax return on the money they gave to the 3rd?

Parent1 filed a gift tax return, and Parent2 filed a gift tax return, right?

How many family members own the farm? At the start of the transactions? Right now? When they finish the transactions?

"3rd brother is wanting to cash out" Cash out of what? Does he own the farm now with his brothers? Did he own it earlier with his parents? 

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5 minutes ago, Margaret CPA in OH said:

And if the third brother 'cashes out' his share from the other two, how is that different from selling his share to those brothers?  If they are receiving cash, how is that a gift to the third brother?

Marie's post is that the parents gave the farm to two of the three brothers, which implies that brother # 3 is not an owner.

To compensate for that Brothers # 1 & # 2 are going to pay brother # 3 cash equal to 1/3 of the farm's value.

Assuming that brother # 3 is not an owner then the cash paid constitutes a gift.

 

 

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9 hours ago, cbslee said:

Boy, there are going to be 2 unhappy brothers somewhere down the road. No step up in basis.

It's truly amazing what people will do with either bad advice or no advice.

I had clients make the decision to receive a ranch as gift vs inheritance while remaining parent was still alive, even though they were well advised on the loss of step-up-basis.  It was  century plus operation that had been handed down from generation to generation by gift.

 

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When you gift it like that, you also have (a lot of times) the non legally binding promise that it will never leave the family. If someone gets sick, you can then rent out the property but still keep it in the family. My nieces husband was gifted 50 acres from his grandfather because he wanted the grandson to work it and make a living off of it while he raised his family.

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