Trust disbrituion of sale proceeds in-kind

[Farmgirl123]

IF you have a simple trust that sells farmland do you report the total gross sale on your return.

Some received their proceeds in cash and the other received proceeds "in-kind"

Will says may opt to take "sale proceeds" in kind.

Do you only have to report the cash portion and only have depreciation recapture on that?

I would think you would have to report the entire sale because it wasn't a direct distribution from the trust.

It was a real estate transaction "sale" then the proceeds were distributed.

Thank you!!

[M-MTax · Accepted solution]

There is no such thing as sales proceeds "in-kind". The trust could have distributed the farmland or sections of it and that would be "in-kind" but instead the trust sold the farmland. You now have a situation where the trust needs to report the sale along with the depreciation and then report the distributions of any gains on K-1s for the beneficiaries.

[Farmgirl123 · Accepted solution]

Thank you,

The beneficiaries that took their proceeds “in-kind” so they didn’t have to put money in and take it out.   They were purchasing the land.  The entire piece of land was sold.  Don’t you have to report the entire sale price in the gross proceeds or do you only report the proceeds for the cash portion?   Seems to me that since this was a sale of the entire farm from the trust that you would have to report the entire sale price no matter how the proceeds were distributed.  That way you would have to report any depreciation recapture and capital gain on the entire sale.  I wouldn’t think the irs would let you not report the sale price for the distribution of the sale proceeds “in-kind”. 

Trying to find a code that explains this.  

[M-MTax · Accepted solution]

Your welcome but this is confusing. The entire piece of land was sold and the beneficiaries purchased the land? 

Need an explanation of what happened. If the trust sold the land then the trust reports the sale. Did some beneficiaries buy out the others?

[Farmgirl123 · Accepted solution]

Yes.  The Trust said that the land was to be appraised at FMV.  The entire thing.   Those beneficiaries that wanted to purchase could take their "sale proceeds" in kind.   The rest would get cash but the entire things was sold.

Doesn't the entire thing have to be reported as a sale and not two different transactions? 

I think they want to report as a sale and a distribution but not as a total sale.  It was sold and a purchase contract was for the entire sale price for the entire piece of land.

[Farmgirl123 · Accepted solution]

And all are related parties.

[M-MTax · Accepted solution]

OK, if the trust sold the entire parcel of land to a third party then the trust needs to report the sale on form 1041. Sorry but I'm still confused about how the trust sells the entire thing and receives the cash and then some beneficiaries get cash while others get something "in kind". If the property was sold by the trust to a third party and received the entire purchase price there can be no more "in kind" distribution.

[Farmgirl123 · Accepted solution]

IT was not a 3rd party.  Trust selling to beneficiaries.   The entire thing sold but the buyers took their "sale proceeds" in-kind (land instead of cash).  They only had to put in the cash for the other beneficiaries and then that was distributed to those.  The buyer beneficiaries was  received the entire portion through a deed. 

There sale proceeds were just distributed through a deed or in-kind).

But the entiere transactions was for an appraised dollar amount that I would think we would have to report to the IRS.

I guess I am saying that the entire piece of property from the trust was sold (real estate transaction).  Then distributed to the beneficiaries in different forms.  (cash and in-kind).

Distributions-in-kind are payments made in an alternative format, such as property or stock, instead of cash.

[M-MTax · Accepted solution]

Sorry, even more confusing. I understand the difference between in-kind and proceeds of a sale but not how the buyer beneficiaries actually acquired title......did they buy out the other beneficiaries or somehow pay the trust for the share that they didn't own?

[M-MTax · Accepted solution]

Anyway maybe it's simple.....the beneficiaries who took title don't have anything to report from the trust since they did get their shares in-kind. The others got cash so they'd have to report any gain on the sale from the trust.