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Angelchase
Returning Member

Capital Gains on Inherited land without a house

My wife inherited 80 acres of farm land 20 years ago. She wants to sell it for 400k . Does the sale get treated like nomal captial gains.  She doesnt have any income.  Should we file "Married filing separately".  My Income in 2021 is 240k.  2022 it will be 150k.  which year should we take the capital gains and file separately?

5 Replies
Mike9241
Level 15

Capital Gains on Inherited land without a house

My wife inherited 80 acres of farm land 20 years ago. She wants to sell it for 400k . Does the sale get treated like nomal captial gains. 

yes her capital gain will be the $400K less selling expenses less the date of death fair market value. 

 

 

 

She doesnt have any income.  Should we file "Married filing separately".  My Income in 2021 is 240k.  2022 it will be 150k.  which year should we take the capital gains and file separately?

 

a great question, we can't answer. we don't know enough about your tax situation to give you a recommendation but generally filing jointly will be better. get the desktop software that will allow you to do separate computations of MFS vs joint filing. the other issue is no one knows what the tax laws will be in 2022. an economic issue is how will the sales price be affected by various events such the pandemic, inflation 

Angelchase
Returning Member

Capital Gains on Inherited land without a house

If the sale is treated like normal capital gains, if she files "Married Filing Separately", and her income is 0, then is it true that she should not have to pay any capital gains taxes?

tagteam
Level 15

Capital Gains on Inherited land without a house

Read through this section --> https://www.irs.gov/publications/p504#en_US_2020_publink1000175841

 

Note that if you are a resident of a community property state, you need to take precautions with respect to commingling the property and proceeds (i.e., the inheritance and proceeds from the sale must be held as separate property).

 

 

Critter-3
Level 15

Capital Gains on Inherited land without a house

Selling in a year with less income is better  and review the QDCGTW to see that either way it will be in at least the 15% tax bracket  ... so use the downloaded 2021 program to do 3 returns ... joint and 2 separate (as already mentioned if you live in a community property state things are more difficult) and take the better option overall.

 

If you are trying to do some 2022 tax planning then use the  2021 downloaded version instead. 

 

This is my mini version of  a tutorial  that should be in the downloaded program: 

What is Forms Mode?

Forms Mode lets you view and make changes to your tax forms "behind the scenes."

If you're adventurous, you can even prepare your return in Forms Mode, but we don't recommend it. You may miss obscure credits and deductions you qualify for, and you may forget to report things that will come back and haunt you later.

Forms Mode is exclusively available in the TurboTax CD/Download software. It is not available in TurboTax Online.

                  

Related Information:

                             

If you want to play around with different figures and tax scenarios without affecting your original return you can ….

  • >>>In the TurboTax CD/Download software by creating a test copy
  • 1.  Open your return in TurboTax. 
  • 2.  From the File menu, choose Save As. 
  • 3.  Give the copy a new name to distinguish it from the original (for example, by adding "Test" or "Example" to the file name). 
  • 4. Click  Save. You are now safely working in the test copy and anything you do here will not affect the original. 
  •  https://ttlc.intuit.com/questions/1900642-how-to-make-a-test-copy-of-your-return

                        

  • >>  use the WHAT IF tool: 
  • - Click Forms Icon (upper right of screen) or Ctrl 2 (forms view) 
  • - Click on the Open Form Icon 
  • - In the “Type a form name.” area type What-If (with the dash), click on the name of the worksheet - click on Open Form 
  • - You will see the worksheet on the right side of the screen; enter the information right into the form 
  • - To get back to interview mode - click on the Step-by-Step Icon (upper right of screen) or Ctrl 1

 

Once you have filed shut off the auto updater function and save the return and .taxfile.

 

It's always a good idea to make a backup copy of your tax data file, in case your original gets lost or corrupted. Here's how:

  1. From the File menu in the upper-left corner of TurboTax, choose Save As (Windows) or Save (Mac).
  2. Browse to where you want to save your backup.
    • Tip: If you're saving to a portable device, save it to your computer first to prevent data corruption. Then, after completing Step 4, copy or move the backup file to your device.
  3. In the File name field, enter a name that will distinguish it from the original tax file (for example, add "Backup" or "Copy" to the file name)
  4. Click Save and then close TurboTax.
  5. Restart TurboTax and open the backup copy to make sure it's not corrupted. If you get an error, delete the backup and repeat these steps.

If you make changes to your original tax return file, repeat these steps to ensure your original and backup copies are in-synch.

Related Information:                             

 

AND save it as a PDF so you have access to a copy even if you don’t have the program still installed and operational :

AND protect the files :

 

*** Other clues to the downloaded program ***

 

In the forms mode ... double click  or right click on a box on a form to data source it ... sadly it doesn't work on all boxes. 

 

What's the meaning of all the different colors in Forms Mode?

When you look at an onscreen tax form using Forms Mode, you might wonder why one figure is blue and the one next to it is red or black.

These colors indicate the source of that data.

Color

 Meaning

Blue

You entered this data, either in the interview or Forms Mode.

Black

The program entered this data or calculated this amount.

Red

This data has either been overridden or is invalid (for example, a ZIP code that doesn't exist).

Red italics

You marked this amount as estimated.

Black italics

The program calculated this amount from an amount you marked as estimated.

Purple

This information has supporting details.

Aquamarine

This data was transferred over from last year.

Green

This data was imported from Quicken or QuickBooks.

Yellow fields (Windows)

Yellow fields allow user input. Anything you enter here shows up in blue.

 

 

 

rjs
Level 15
Level 15

Capital Gains on Inherited land without a house


@Angelchase wrote:

If the sale is treated like normal capital gains, if she files "Married Filing Separately", and her income is 0, then is it true that she should not have to pay any capital gains taxes?


No, it's not true, because her income is not zero. The tax bracket for the long-term capital gain is determined by her taxable income including the capital gain. So even if she has no other income, her taxable income will be almost the entire gain on the sale of the land. If she files separately, only the first $40,400 (for 2021) or $41,675 (for 2022) will fall in the 0% bracket. Any gain over that amount will be taxed at 15%. Also, her AGI will probably be over $125,000 (for filing separately), which means she will pay an additional 3.8% of net investment income tax on the amount by which her AGI exceeds $125,000. The gain on the farm land is considered investment income for the net investment income tax.


The thresholds for the 15% bracket for long-term capital gain, and for the net investment income tax, are higher for married filing jointly. So that's one possible reason that filing jointly might work out better. As others have suggested, you have to do the math.

 

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