[Wisco1]

I inherited my mother's farm with three siblings, in 2006. Approximately 3/4 of it was sold in 2007. We are now selling the remaining land. My question is time. The FMV will be from appraisal in 2006... is there any changes because of the time situation. The price realized is less than appraised value.

[ebaines]

No - the FMV at the date of death of the decedant is what you use. That basis does not change with time, unless you invest more in the property through capital improvements, or unless the property is used for business (is it a working farm?) and you have been depreciating the value of it over the past 4 years.

When you sold 3/4 of the farm in 2007 did you report the sale? What figure did you use for the cost basis of that parcel? Assuming it was properly reported: for the sale in 2011 the cost basis is the original basis (FMV from 2006) minus the amount of basis you applied on the 2007 sale. As a reminder - if you have a loss you cannot deduct the loss unless the property was involved in business.

[Wisco1]

Sale was reported. Apraisial was $400K... first sale was $260K which left a parcel that was woods, not farmland. $140K was value then... now selling that for $100K.

[ebaines]

Are you saying that the first sale had a cost basis of $260K out of an original FMV of $400K? If so, then you are correct that you have a $40K loss. You do not need to report this, since losses on personal property are not deductible.

I sense from your original post that you would be happier if you could show a lower cost basis, so that you would have a gain. But that is precisely what you don't want. To minimize taxes it's better to have a loss than a gain, so you want to maximimze cost basis, not minimize it.

[AtlantaTaxExpert]

I agree with ebaines on everything except the reporting requirement.

If you sell ANY real property (that is not your home that qualifies for the exclusion under the 1997 tax law), there is a requirement to report that sale on Schedule D, even if you cannot deduct the loss. Unbeknownst to you, when the property is sold, the title company will probably submit a Form 1099-S to the IRS to report the sale. If there is no corresponding sale reported on Schedule D in your tax return, it is only a matter of time before the IRS will send you a notice adding the sales proceeds to your tax return, with a ZERO basis, and then assess the taxes, plus penalties and interest.

[Wisco1]

I understood ebaines to mean we have to report on Sch D but there will be no loss value to claim.
Our Title Company made sure we knew that sale proceeds would be reported to IRS and there was no problem with filing.

[AtlantaTaxExpert]

Excellent! More than a few of my clients have FAILED to report the sale, requring amended returns when they get the notice from the IRS asking for THOUSANDS in added taxes.

[ebaines]

Atklanata - thanks for the clarification on reporting. My post was poorly worded - I didn't mean to say that literally there is no need to report anything, but rather that there is no gain or loss to report. You cleared it up nicely.