If I sell pasture land to my renter for less than the Fair Maket Value, 2 questions:1) is the difference considered a gift by the IRS? 2) what will be my 'cost basis'?

[RobertB4444]

Your cost basis is what you paid for the land plus any money you spent on improvements to it.

Your selling price is the real question.  Selling to friends or family below market value is a real gift and that's how the IRS sees it.  So you can make a gift of the difference between the fair market value and what your sale price is (you have an annual gift limit of $18,000, or $36,000 if you are a married couple) and be done with it.  

This is a business arrangement and so you could also make it out as a rent-to-own deal and draw the papers up that way.  Either way it would be a good idea to consult a legal professional in your area before going through with the sale.

@rmfrog1 

[rmfrog1]

OK, I understand about the $18,000 annual Gift Tax Exclusion and hope that I don't exceed it. I mis-spoke. for my 2nd question -- I meant to say: If the property is sold below FMV, do I use the FMV for the SELLING PRICE or the actual selling price? I thought that I read somewhere that I had to use the 'stepper-up' FMV as the selling price. Thanks for your prompt responses.  -- Rmfrog1

[PatriciaV]

For a bargain sale (below FMV), use the actual sales proceeds as the selling price. The gift of equity will affect the buyer's basis when they sell the home in the future. 

Per IRS Pub 544 Bargain Sale:

"If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. You have a gain if the amount realized is more than your adjusted basis in the property. However, you do not have a loss if the amount realized is less than the adjusted basis of the property."

[rmfrog1]

OK, thanks. However, I will be selling bare pasture land with no improvements, not a residence or rental house. Do the same rules apply to bare land as they do to property with a house on it? 

And, I must say that I was a little distracted when I asked the original question because I meant to ask about determining the capital gains/losses and if FMV is used for the selling price or if the actual, discounted selling price is used for that.  As you mentioned, I will have to let the buyer know that he is receiving a 'gift' that would be the difference between the FMV and the actual, discounted selling price.  I will be reading the IRS Pub that you mention thoroughly.   Thanks so much for your patience with my question; I think that I have it correct now  -- Rmfrog1