Yes, you are correct. When she filed jointly in the past with my father, the capital gains tax for the installment sale did not kick in. Now that she has to file single, the capital gains tax kicked in. I know that when assets pass from a deceased to a beneficiary, some assets (including this farm land) receive a step-up-in-basis. However, with this installment sale it looks like that would not apply (IRS publication 559, page 9, Survivors, Executors, and Administrators.) Is there anything I am missing that would help reduce her tax liability? Seems crazy that her taxable income went down 32% and her tax liability went up 60%.
