Stepped Up Basis and Farm Inheritance: What Should You Do?

Stepped-up basis is a tax provision that allows heirs to reset the basis of assets they inherit to the fair market value of the assets on the date of death. This can be a valuable tool for heirs, as it can help them reduce their capital gains tax liability when they sell inherited land.

Capital gains tax is a tax that is paid on the profit that is made when an asset is sold. The profit is calculated by subtracting the basis of the asset from the sale price. The basis of an asset is its original cost, plus any capital improvements that have been made to it.

For example, if a farmer buys land for $100,000 and the land is worth $200,000 on the date of death, the heir's basis in the land will be stepped up to $200,000. If the heir then sells the land for $300,000, they will only have to pay capital gains tax on the $100,000 in profit that they made after inheriting the land. That's quite a difference than paying tax on the whole amount! 

How Can I Help?

• Provide price opinions: I can provide heirs with price opinions for the land they are inheriting. This information can be helpful in determining the fair market value of the land on the date of death. I come out and visit the farm, take some pictures, look at some soil maps, and look at comparable farms that have sold. All of this is done in conjunction with your CPA to ensure that the stepped up basis is acceptable.
  
  
• Help to find buyers: With a long list of buyers on hand, and the ability to reach buyers from across the nation, the majority of our clients decide to have us sell the farm when they are ready. We want the farm to be viewed by as many people as possible and we have implemented industry leading marketing techniques to ensure it. 
  
  
• Negotiate on behalf of heirs We can negotiate on behalf of heirs to ensure that they get the best possible price for their inherited land. You only have one chance to sell a property and we want to make sure we sell it correctly, whether that be a traditional listing or a land auction. 

Conclusion

Stepped-up basis can be a valuable tool for anyone who inherits real estate. It can help them reduce their capital gains tax liability when they sell. By working with a tax advisor, developing a good estate plan, and hiring the correct realtor, heirs can maximize the benefits of stepped-up basis. Pay less to Uncle Sam, and keep more of the proceeds for you and your family. 

Toby Prussman
President | Missouri Land Specialist
816-385-7802