Step down in basis of assets jointly owned when one owner dies

Forum|Forum|2 years ago
November 30, 2023
2 replies
18 views

Have a client, a farmer, whose husband died in 2022. She was forced to sell over $1M in machinery. I know how the step up and step down works. My problem is how to account for it in Proseries. Where do I enter the step down amount to adjust the basis of the asset? Would appreciate any help.

ProSeries Professional

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sjrcpa

Level 15

Are you sure its a step down? While dod value of used farm equipment is less than its original cost, it's apt to be more then the adjusted basis considering it was depreciated.

The more I know the more I don’t know.

N

nernAuthor

Level 2

Example: Planter bought at $3000, in 2015, all $3000 was taken in 179 acceleration. Skip forward to 2023, Husband dies, wife is forced to auction off machinery. At auction, this planter was sold for $1050, with $70 in selling expense, net income of $960. Wife's basis is $1500, husband's basis is reduced to $490, half the proceeds. This makes the adjusted basis $1990. What do you calculate the gain to be?

Someone posted somewhere (I can't find it now) that they entered a new asset with the new values. Does this sound feasible?

T

TaxGuyBill

Level 15

@nern wrote:

all $3000 was taken in 179 acceleration.

this planter was sold for $1050

Wife's basis is $1500, husband's basis is reduced to $490, half the proceeds. This makes the adjusted basis $1990.

I assume this jointly owned property is NOT in a Community Property State?

If 179 was taken, the wife's half has $0 Basis.

If it was sold for $1050 (assuming that was FMV at death), the portion for the husbands new Basis is $525.

For a total of $525 Basis. After the $70 of selling expenses, that would be a $455 taxable gain (depreciation recapture).

As for your actual question ... you said the husband died in 2022? Were the items sold in 2022? Or were they sold in 2023?

The_AntiTax_Man

Level 7

@nern you have a client, a farmer, whose husband has died....

So, who was the farmer? The deceased husband, or the living wife?

If the deceased husband was the farmer and he has been filing as a sole proprietorship on a Form 1040, Schedule F, it is possible [depending upon the state you are in] that he was the owner of 100% of the farm machinery and it gets a 100% step-up in basis. If she is not the farmer and is the beneficiary and she sells all of the farm machinery soon after her farmer husband's death, there would be no gain.

If she keeps the farm machinery for a period of time. say into the succeeding year, these items begin the depreciation cycle anew. Enter all of the farm machinery items onto the wife's new Schedule F with an acquisition date of the DOD of her deceased husband.

If the deceased husband was a sole proprietor cash basis farmer there is also a step-up in basis of the growing and stored grain and forage inventory, bedding, breeding livestock, feeder livestock, etc. Real Estate. if in joint tenancy, would likely receive a 100% step-up in basis on the deceased farmer's 1/2 only. The surviving wife's 1/2 would retain it's original basis. This would also be the case of all farm real estate improvements [buildings, tile, etc]. Enter onto her new Schedule F as of DOD and depreciate anew.

You need to discuss this all with the estate attorney. He is a legal expert for your state laws.

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