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Step down in basis of assets jointly owned when one owner dies

nern
Level 1

Have a client, a farmer, whose husband died in 2022. She was forced to sell over $1M in machinery. I know how the step up and step down works. My problem is how to account for it in Proseries. Where do I enter the step down amount to adjust the basis of the asset?   Would appreciate any help.

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6 Comments 6
sjrcpa
Level 15

Are you sure its a step down? While dod value of used farm equipment is less than its original cost, it's apt to be more then the adjusted basis considering it was depreciated.


Ex-AllStar
nern
Level 1

Example: Planter bought at $3000, in 2015, all $3000 was taken in 179 acceleration. Skip forward to 2023, Husband dies, wife is forced to auction off machinery. At auction, this planter was sold for $1050, with $70 in selling expense, net income of $960. Wife's basis is $1500, husband's basis is reduced to $490, half the proceeds. This makes the adjusted basis $1990. What do you calculate the gain to be?  

Someone posted somewhere (I can't find it now) that they entered a new asset with the new values. Does this sound feasible?

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TaxGuyBill
Level 15

@nern wrote:

all $3000 was taken in 179 acceleration.

this planter was sold for $1050

Wife's basis is $1500, husband's basis is reduced to $490, half the proceeds. This makes the adjusted basis $1990.


 

I assume this jointly owned property is NOT in a Community Property State?

If 179 was taken, the wife's half has $0 Basis.

If it was sold for $1050 (assuming that was FMV at death), the portion for the husbands new Basis is $525.

For a total of $525 Basis.  After the $70 of selling expenses, that would be a $455 taxable gain (depreciation recapture).

 

As for your actual question ... you said the husband died in 2022?  Were the items sold in 2022?  Or were they sold in 2023?

The_AntiTax_Man
Level 7

@nern you have a client, a farmer, whose husband has died....

So, who was the farmer?  The deceased husband, or the living wife?

If the deceased husband was the farmer and he has been filing as a sole proprietorship on a Form 1040, Schedule F, it is possible [depending upon the state you are in] that he was the owner of 100% of the farm machinery and it gets a 100% step-up in basis.  If she is not the farmer and is the beneficiary and she sells all of the farm machinery soon after her farmer husband's death, there would be no gain. 

If she keeps the farm machinery for a period of time. say into the succeeding year, these items begin the depreciation cycle anew.  Enter all of the farm machinery items onto the wife's new Schedule F with an acquisition date of the DOD of her deceased husband.  

If the deceased husband was a sole proprietor cash basis farmer there is also a step-up in basis of the growing and stored grain and forage inventory, bedding, breeding livestock, feeder livestock, etc.  Real Estate. if in joint tenancy, would likely receive a 100% step-up in basis on the deceased farmer's 1/2 only.  The surviving wife's 1/2 would retain it's original basis.  This would also be the case of all farm real estate improvements [buildings, tile, etc]. Enter onto her new Schedule F as of DOD and depreciate anew.

You need to discuss this all with the estate attorney.  He is a legal expert for your state laws.

nern
Level 1

Husband (deceased) was the "farmer" until 2019, when for unknown reasons, changed the proprietorship to the wife. So, I assume on any equipment bought before 2019, and fully depreciated, she has a basis of $0. Got it all figured out how to calculate the disposition of those assets (with the help of my go-to CPA friend). Does the calculation change when she is the farmer? How to calculate his and her basis and P/L? Everything was owned jointly. I am using an appraisal by the auctioneer for the cost.

I appreciate your help.

 

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The_AntiTax_Man
Level 7

@nern if the husband was the sole proprietor farmer through 2018, then he likely would have owned 100% of all of the farm machinery bought during 2018 and all prior years.

The husband would likely still have retained ownership of his farm machinery even after he was no longer operating the farm.  Even if the wife would have used his farm machinery to operate her farm, he likely would have retained ownership of his farm machinery.

In the 2019 transition year where she became the farm operator did they file two Schedule F's, one for him and one for her?  Is there any evidence, such as a Bill of Sale, that shows that the husband transferred the ownership of all of his farm machinery to the wife prior to his demise?     

You need to get into contact with the attorney that handled the husband's estate as you seem to lack knowledge and understanding about the circumstances surrounding that event.  

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