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Dano108: "My parents sold their farm last year and gave it to my three sisters and me via an investment account."

Gave you and your sisters the farm or the proceeds from the sale?

"We each got $110K in separate accounts. In turn, we each pay them $7K per year to live on."

Was the 110k a gift to you and your sisters or are you simply holding your parents' money for them? If it was a gift, did your parents file a gift tax retrun and pay the requisite gift tax?

"1. Do we pay dividends and capital gains on this account as a non-retirement account (about $9.5K this for 06)?"

Somebody needs to pay taxes on dividends and capital gains.

"2. Is the $7K payment deductible for me?"

Probably not. Why do you think that it should be deductible?

"3. Is the $7K payment taxable for my parents?"

I understand so little about what has previously happened, that it is sifficult to say. Porbably not, I guess, because mostl likely either you are returning your parents' own money or are making a gift.

"I am getting conflicting comments from my parents tax person. He says to treat it as a retirement account and pay taxes only on money as it is removed from the account."

Unles there is more going on than has been disclosed, this advice seems so wrong that I would not listen to anything your parents' tax person states.

I hope that the resident pros will be along shortly with clarification.

Regards, JAFO

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