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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Jesstache on March 23, 2016, 10:21:14 AM

Title: Farm Land title transfer question
Post by: Jesstache on March 23, 2016, 10:21:14 AM
My MIL is turning 80 this year and has a chunk of land she inherited from her mother when she passed away years ago.  This is Kansas farm land and it is adjacent to the rest of the farm that her brother inherited and actively farms with his family children and spouses...He's 82.  While visiting her this past week she casually mentioned how she transferred ownership of the land to my husband and his sister a few months ago (in 2015), giving each half.  In total it's 160 acres, each of them got 80 acres.  I'm not even sure why she did this other than I think she's trying to make sure all of her affairs are in order since she's getting up there in age (though she still runs around and works around her house and garden like someone much younger).

After further questioning she's still paying the taxes and collecting the "rent" on the land.  I don't think she's actually renting out the land to be farmed but I do know she has it enrolled in government programs that pay her to not farm the land.  Something about preserving Kansas prairie lands so she has to have specific types of wild flowers growing on it and such.  I actually think her brother set it all up for her as he knows all the ins and outs of farm land management.  I'm not sure how she was able to transfer ownership but still maintain these programs on the land but she's confident that nothing's changed in the management of the land, just the names on the title.  I think she honestly didn't realize there could be any tax consequences to transferring the title and didn't even think to ask any of us if she should do it.  She did it all without any of our knowledge, though perhaps my SIL knew about it as they live close together and we live several states away.  SIL would have been similarly ignorant anyways on how this might have to be taxed. 

My immediate thought is that someone will have to pay taxes on the land value as a gift for 2015 taxes, which MIL estimates is around $1000 per acre, and after thinking it through, it'll likely be her.  MIL is meeting with her accountant this week to do her 2015 taxes and she said she will ask him about the land but I'd like to get some other opinions on what this might mean for her/us.  If it matters, she also gifted us $5000 at Christmas time as an early "inheritance" which SIL also received.  Does anyone have any advice or know how this transfer would be treated? 
Title: Re: Farm Land title transfer question
Post by: Axecleaver on March 23, 2016, 10:41:17 AM
Not an accountant, but I think you're OK, just need to do some more complex filing. The annual gift tax exemption is $14k per giver/receiver pair. If you give more than that, the giver has to file a gift tax return (Form 709). But there is a lifetime exemption of ~$5m, which is typically used for estates after death. She can use this exemption now, just makes it more complex to deal with the estate filings later.

A quick search shows average KS farmland worth $2030/ac. The total gift for the year is 80 acres * 2k = 160k + 5k at Christmas, which she will also have to claim on the form.
Title: Re: Farm Land title transfer question
Post by: Proud Foot on March 24, 2016, 09:17:45 AM
Like Axecleaver said, she will need to to file a gift tax return.  The worst part of the transfer before her death is that you will not get a step up in basis.  Your husband and his sister's basis in the land will be the market value of the land when she inherited it from her mother.  This is important if you are planning on selling your husband's portion. 
Title: Re: Farm Land title transfer question
Post by: Jesstache on March 24, 2016, 09:29:25 AM
Thank you all for your advice. This will give me questions for her to ask her accountant that can hopefully save headaches later.  I don't foresee us or SIL ever selling the land as it has been in the family over 100 years.  If anything, MIL's brother and family have expressed interest in buying it as they own all of the surrounding land and they currently rent grazing rights on part of it.  The only thing I could see is gifting it to them some day but I know MIL wishes for our children to eventually inherit it, which we would of course do our best to carry out her wishes hopefully far, far into the future.