Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
I recently received some land due to an inheritance that I'm not that keen on keeping (misplaced clause, I'll keep the inheritance). The rest of the family would be happiest if the land stayed within the family.

While the one post before I found on land for stock said taxes would be due after the exchange, I'm still unclear how this would work. Is disposal of the land at the appraised price for stock possible? If it is, would the transaction occur at fair market value of the stock with basis (period and amount)of the (land) buyer transferred? If this is so, wouldn't all be better off purchasing this with a stock that was down relative to the basis?

Any help appreciated
Thanks
Print the post Back To Top
No. of Recommendations: 0
[[I recently received some land due to an inheritance that I'm not that keen on keeping (misplaced
clause, I'll keep the inheritance). The rest of the family would be happiest if the land stayed within
the family.]]

Well, remember after all is said and done, it's YOUR property. So while the family is a consideration, it's really yours to do with what you wish.

[[ While the one post before I found on land for stock said taxes would be due after the exchange,
I'm still unclear how this would work.]]

I'm not sure of your question. Are you asking if you can "exchange" real property for stock? If that's the question, the answer is no.

[[ Is disposal of the land at the appraised price for stock
possible?]]

Nope. Not via a tax deferred exchange. If you decide to make such a trade, the transaction would certainly be taxable, and you would be liable for the taxes...which means that you would have to liquidate some of the stock in order to pay the tax.

[[ If it is, would the transaction occur at fair market value of the stock with basis (period
and amount)of the (land) buyer transferred? If this is so, wouldn't all be better off purchasing this
with a stock that was down relative to the basis?]]

Again...you are losing me with your question here. If you are trying to deal with a tax deferred exchange, forget it. If you don't mind a taxable exchange, post some additional information or examples and I'll try to help you out.

TMF Taxes
Roy

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. There is still time available to do that tax planning (and tax saving) before the end of the year. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.
Print the post Back To Top
No. of Recommendations: 0
Hi Roy,

Okay, so I have a knack for posting ambiguous questions. BTW the amount involved is significant for me but not that much so for my mom.
So let's say the land involved (actually a worked farmland being leased, I know farmland sometimes comes with strange rules) is appraised at 100k. I prefer equities over real estate. But my mom would like the land left in the family. I'd like to sell her the land for stock if if wouldn't be horrible for all involved.
I know this will be taxable but I'm unsure of the details. Say the potential stocks she'd buy with are 200k(FMV) of company A where her basis is 150k or 200k(FMV)of company B where her basis is 250k.
Must I sell the land to her at market price? Are there any detriments(audit!) to selling it to her above market price or benefits to selling it at a discount? Which would be a better case to but from? Must the underlying securities be sold or can I just pay the tax liability separately?


Thanks

Mike
Print the post Back To Top
No. of Recommendations: 0
[[Hi Roy,]]

Hi again, Mike!!!

[[ Okay, so I have a knack for posting ambiguous questions. ]]

Not necessarily. Part of the problem with this medium is that it doesn't allow for much instant "give and take". So, at times, my perception of the problem may be a bit hazy.

[[BTW the amount involved is significant
for me but not that much so for my mom.
So let's say the land involved (actually a worked farmland being leased, I know farmland
sometimes comes with strange rules) is appraised at 100k. I prefer equities over real estate. But
my mom would like the land left in the family. I'd like to sell her the land for stock if if wouldn't be
horrible for all involved.]]

OK...

[[ I know this will be taxable but I'm unsure of the details. Say the potential stocks she'd buy with are
200k(FMV) of company A where her basis is 150k or 200k(FMV)of company B where her basis
is 250k.]]

I'm sorry, but here is where I'm gettin' lost again.
Are you telling me that the property FMV is $400k, and she would give you $400k in stock (with a combined basis of $300...leaving a gain of $100k? That would certainly be taxable to her. And you didn't tell me what your basis in the property might be. So I can't really help out on your end.

[[ Must I sell the land to her at market price?]]

Must you? Not necessarily. But it is ALWAYS best to deal in reality...as close to FMV as possible. If not, IRS can always come in and call it a sham transaction. In addition, since it is a related party, there is no way that either of you could claim a loss on the sale. So make sure to keep that in the back of your mind.

[[Are there any detriments(audit!) to selling it to her
above market price or benefits to selling it at a discount?]]

I don't know what the benefit would be to sell at a greater than market price...right off the top of my head. It would just make the taxable gain greater. As far as a discount, that wouldn't necessarily be a problem, other than the disallowed loss issue (and the sham issue) that I mentioned above.

[[ Which would be a better case to but
from?]]

Since I'm still not real clear on both sides of the transaction, I'm still not sure that I can even venture a guess.

[[ Must the underlying securities be sold or can I just pay the tax liability separately?]]

It wouldn't be YOUR tax liability. If the equities belong to mom, SHE would be on the hook for the taxes. YOU would be on the hook for your taxes on your end of the sale. The problem is that unless your basis and the FMV of the property is close to your mom's basis, somebody is gonna get screwed.

You might be MUCH better off just having her sell the shares, report the gain, pay the tax, and buy the property for cash. Then you take the cash, report YOUR end of the gain, pay the tax, and buy stock with what is left over.

After all is said and done, THIS is how the entire transaction would end up anyway.

TMF Taxes
Roy
Print the post Back To Top