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Re: taxes on land sale
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Posted by MarkB_MI on September 28, 2006 at 19:18:09 from (64.31.11.37):
In Reply to: taxes on land sale posted by centmo on September 28, 2006 at 14:19:25:
What the taxes will be depend on what their cost basis is. This may be very difficult to determine, since farms are frequently gifted from one generation to the next (rather than inherited). When you receive property as a gift, you also get the donor's tax basis. To determine the cost basis, you must follow the title history back until you get to either a purchase or inheritance. In the case of a purchase, the cost basis is the actual purchase price. Of course the cost basis is adjusted for improvements to the property, less depreciation that's been deducted from taxes. In the case of inheritance, the property gets a new cost basis equal the value of the property when it was inherited. Of course, that value may be difficult to determine today if the property wasn't appraised then. Capital gains are taxed at 28 percent, so if the cost basis on your parents' property is $50,000, the gains would be $400,000 resulting in a tax liability of $112,000. The best way to avoid taxes on the property is for you parents to will it to their heirs. After their death, the heirs will get a new cost basis and can sell the property (if they wish) without paying any capital gains tax. You need to find out why your parents want to sell this property. And they need the advice of a lawer specializing in estate planning before they put the property on the market.
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