Author Topic: Widowed mother and farmland  (Read 716 times)

ericbonabike

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Widowed mother and farmland
« on: May 08, 2020, 04:38:34 PM »
My dad passed away this past January.  He left my mom a jointly owned beautiful piece of property in rural Wisconsin. 
Here’s the details: 
Purchase price was 250,000.  The house was a derelict farmhouse appraised for $20,000. 
Land is just a shade over 100 acres.

My mom now wants to sell.  We have one semi firm offer and talked to a real estate attorney to proceed with a fsbo.    She has advised us to talk to a cpa because of the capital gains.
 

Here’s the potential deal: 
Sell for 430,000.  A gross appreciation of 180,000.  Which at first blush seems like a bunch since they’ve only owned the property since 2015. 

But...the farmhouse was derelict.  Valued at 20k.  My mom and dad gutted it.  Down to the studs.  Beautifully remodeled.  It’s a 2 story cabin with 2 bedrooms and 2 3/4 baths and unfinished basement .  about 1600 square feet of finished.


In my mind, houses in that area sell for 100 per square foot.  So there house might be worth about 160k.  Which would be a gain of 140k.   And the acreage would have appreciated another 40k.  Which seems more reasonable.  I believe that the gain in the primary residence can be excluded from capital gains based on the following website:

https://www.tophandadvisors.com/straight-talk-educational-guides/section-121-selling-home-along-with-farm-ranch


I’m not sure any of it really matter as dad has been dead only about 4
Months.  And isn’t there some provision that a widow would inherent the stepped up amount effectively resetting the cost basis.  ?

We’ll probably talk to cpa next week, but hoping some MMM forums goers can help me become
More educated before We talk to one.

Unfortunatly, my parents kept zero records of the restoration process. 

calimom

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Re: Widowed mother and farmland
« Reply #1 on: May 08, 2020, 07:22:21 PM »
Was the house/property  their primary residence? It would  seem that the $500K tax exclusion  on  the profit, which your mother would  qualify for within 2 years DOD is well under the allowable amount. The records of improvement wouldn't seem to need to come into play on this.

Please accept my condolences for your family's loss. I hope the sale goes smoothly.

ericbonabike

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Re: Widowed mother and farmland
« Reply #2 on: May 09, 2020, 01:09:37 PM »
Yes.  Primary residence.  That was my thinking  as well.

lhamo

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Re: Widowed mother and farmland
« Reply #3 on: May 09, 2020, 03:55:47 PM »
Unless there is more than one deed/piece of property, it is the total valuation that matters -- she should be eligible for the full $500k exemption from capital gains as long as she sells before the IRS deadline for widowed spouses.

ericbonabike

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Re: Widowed mother and farmland
« Reply #4 on: May 09, 2020, 04:16:16 PM »
Well, lawyer said something weird about the fact that she would have to pay capital gains on the unimproved acreage.   I told her that I thought most of the appreciation was in the primary residence.
We’ll try to talk to cpa tomorrow.  But the appraisals will back my assertion up.

Car Jack

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Re: Widowed mother and farmland
« Reply #5 on: May 12, 2020, 08:17:56 PM »
If the entire farm is on one deed, it's all included.  If it's broken up with separate deeds, then the lot(s) without a house on it would be subject to cap gains tax.

wbranch

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Re: Widowed mother and farmland
« Reply #6 on: May 13, 2020, 04:47:44 PM »
Wisconsin is a community property state. So there would be a full step up in basis to FMV. So no gain, and you don't have to use the Sec 121 exclusion.