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On the farm, you did not inherit anything until your father died. You would use the fair market value on the date your father died.

 

** The wording of your grandfathers will concerns me. In many states, it is not allowable for the original owner to dictate how the heir must pass the property to the next generation.  The designation that your father must distribute the property equally to his three children may be invalid. In that case, you would have to look at your father‘s will, not your grandfathers will. And if your father did not have a will, then you would have to look at the laws of intestacy in your state.  You may wish to consult with an attorney. My best guess is that each sibling inherited 1/3 of the farm at the fair market value on the date of the father‘s death.  (The 3 children of brother 1 each inherited 1/9 the property and use 1/9 the basis.)

 

Regarding your father‘s house, the cost basis is probably the fair market value on the date your father died (divided nine ways of course).  The beneficiary deed can probably be understood as conferring a life estate, or at least an implied life estate.  The named beneficiaries would have inherited 1/9 of the property each, except for the three children of brother 1, who would have each inherited 1/27 of the property.

 

Again, it would probably be very beneficial to get the situation reviewed by a CPA who understands inheritance law in your state or by a lawyer who understands tax law. A written opinion would apply to all of you, and if you split the cost, it wouldn’t be that much individually.

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