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Inherited farm land sale loss to nephew

claytonranch — Thu, 06 Feb 2020 12:59:25 GMT

Inherited farm land in Iowa from my mother's estate. Sold this farm land to my nephew (my brother's son) at a loss. Is my nephew considered a "related party"? Can I take this capital loss?

Re: Inherited farm land sale loss to nephew

Irene2805 — Thu, 06 Feb 2020 14:30:37 GMT

No - Your nephew is not considered a related party. You will be able to take the loss up to $3,000 on your 2019 return. Any remaining loss will be carried forward to your 2020 return.

The IRS defines a related party in part as:

Members of your family. This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.) [IRS Pub. 17 - Your Federal Income Tax, p.104]

Re: Inherited farm land sale loss to brother

clover addison — Sat, 03 Apr 2021 15:20:39 GMT

Am I understanding correctly? I along with my 3 siblings inherited our mother's dwelling and 50 acres of farmland. The will said that one particular sibling had the right to purchase all of it at 70% of the assessment at death which he did. The property was sold through the estate (Form 1041).

Can the estate take the loss which will be distributed to the four children?

The way I think I'm reading the law.....the heirs can't take the loss since it was sold at a loss to a relative.

Can someone clarify my thoughts or direct me in the right direction?

Thanks.

Re: Inherited farm land sale loss to brother

ToddL99 — Sat, 03 Apr 2021 15:59:38 GMT

For a number of reasons, the estate cannot claim a deduction for a loss on the sale of this property.

One - The estate did not incur a loss on the sale; it only received what the property was worth in the estate's hands. Since a beneficiary had the preexisting right to purchase the property at a "discount", means the value of the property in the hands of the estate was whatever the beneficiary's exercise price price was (70% of assessed value?). The concept of FMV (and resulting loss) would not apply since someone had (and exercised) a contractual right to purchase the property at a pre-determined price.

Two - The sale was made to a related party, and losses on sales to related parties are not deductible.

Even if the purchaser (a beneficiary) had no right to a "discounted price", any sale to a related party for less than FMV would not qualify for capital loss treatment. See Loss on sale of property to a relative or related party

Three - Sales of personal property (residence and adjacent land) do not qualify for capital loss treatment. If the "farmland" had been in production, that part of the sale may have qualified for loss treatment except for the previously listed reasons it did not.