Here is a good article on it.
https://www.nerdwallet.com/article/taxes/selling-home-capital-gains-tax

What I found is when taking a disbursement or dissolving a Trust, you are supposed to get a K1. However, that doesn't automatically mean you owe any tax.

Let us know how your situation plays out.

I don’t see any tax liabilities in this scenario.
Get the 25% appraised at death, that’s your new basis on it (land and timber) + structures.
The purchase price on the 75% is your basis on it, still need the timber appraise imo. Timber and land are separate when you sell timber.
Unless you sell, there shouldn’t be any tax liability imo.
Obviously get the timber valued as high as possible in the appraisal.
This is interesting, thanks for sharing.

I don't know the answer to your question, but congrats on the purchase. That is awesome!

Jeremy

X2

So, I spoke to the preparing accountant today.

I asked him why she received a K1 with capital gains listed. His response, “ Well, I’m pretty sure it was done properly”

“Pretty sure” doesn’t give me the warm and fuzzies.

He says that even though she retained her 25% ownership- That the 25% ownership is worth more now than it was 4 years ago and that since she didn’t receive cash distributions from the sale, and instead retained ownership, that she’s liable for the capital gains on the increased value of the 25% share.

The gross proceeds on the 1099 are listed as what would be the 75%, not the full 100%. So, I’m still baffled at how they can figure her gains if that particular interest of the property never “sold. Do they just take what the 75% sold for and extrapolate that over to the other 25%. Seems odd.

I sent a question to my tax people and they recommended me contact the preparer of that K1.

In all my years, I’ve yet to find any tax person that actually wants to help someone with more than plugging a few things into turbo tax and collecting their check..

I’d be willing to actually pay someone to look into if this was done properly or not, if anyone on here is in the tax world- or has a good helpful recommendation.

If I owe the money, that’s fine, but if I don’t, I’d rather not let loose of it.

Sounds like he is saying that the 25% was essentially still part of the trust and had not been transferred to your wife until the other 75% was sold to you. If that is the case, then if there was an increase in value of the 25% from the death of the owner compared to the value when the trust had all assets dispersed, then you would owe capitol gains on the 25%. I still think the capitol gains on the 75% would go the the other owners and not you/your wife. I have a very good CPA but they are in Florida and you would be best to stick with one from Alabama.

I suppose that’s what he’s saying. Still doesn’t seem right to me, but Uncle Sam is gonna get his. And this may be their way of getting sooner than later.

I’d still feel better with a different tax person telling me that this is, in fact, correct.

I agree on getting another opinion from another CPA. I am just basing my thoughts on previous experiences with trusts from both my parents and my wife's parents estates. But we relied heavily on the trust attorneys and CPA's to help guide us through the process. They were invaluable and communicated between each other to resolve any questions we had or when they gave conflicting advice.

I bet it stems from completely dissolving the Trust . Trust fine print can be complicated . Wonder how the other three family members who split the 75% buy out , taxes shook out ?

Right, but still she's not going to realize the capital gains on the 25% until she sells the land and makes a profit, so no capital gains...

If I remember correctly, the Trust was issued a new tax ID number upon death of the trust owner because it went from revocable to irrevocable and a Certificate of Trust was completed. Once all assets were dispersed from the trust a final tax return for the trust was filed and if there were capitol gains or interest etc that the trust had accumulated since it became irrevocable and was assigned a new tax ID number, then those were factored into the final tax return and any taxes due were paid from the estate.

I think you got it . Trusts with assets like land, equipment , timber sales , crop shares , basically , if they have income and a bank account ........... have tax ID #. When we had ours done , the lawyer said it's like making a person on paper . When the trust is dissolved , it's like the trust ( person) died.

This here is my understanding as well. Gotta sell it before there's a traceable gain.

Hit post to soon, dang it.

Any income made on the land will have a taxable gain over the time she owns it, and then there will be gain on the appreciation of the land if she sells it.

Keep in mind there are short term and long term gains. Short term is income, long term is taxed at a lower rate.

You need to get a good tax accountant so you don't mess up.

Did she make any money? If not there is nothing to pay taxes on. The democrats want to change that

I'm not a tax attorney or an accountant, but I believe the situation is that upon terminating the trust, she actually did receive a distribution of property from the trust (of which she is a beneficiary) to herself personally/individually. That can be a taxable event because there is a disposition of trust property, and there may not be an available offset for market value (like a stepped-up basis at the time of death, for example).

That said, I don't see how she would be allocated all of the distribution (i.e., 100%) because what should have occurred is the other beneficiaries get allocated their portions of the trust principal (the property and equipment) and then convey those to your wife. That transaction wouldn't really be taxable because they are selling at the basis they just established when the trust property was distributed to them (which was the taxable event for them).

You're going to need an actual tax accountant -- not a tax preparer -- to guide you on this. https://www.mitchellwilliamslaw.com...utations-and-early-terminations#_ftnref1

We didn’t make any money, at least “on paper” we didn’t. It was actually the most amount of money I’ve ever spent, but I don’t regret it.

If they are trying to consider the 25% being worth more now than it was 4 years ago, and taxing off of the “potential gain” based off of an appraisal from 4 years ago verses the recent purchase price..well I guess we did.

I’ve had the property appraised myself as part of the purchase, and it appraised for way more than I paid. I didn’t let the family know that though



^^ I think Cynical pretty well nailed it. They must look at the distribution of land the same as 25% of the income from a sell. We’ll likely owe and I’ll probably just have to write the check. Not the end of the world if so. But I do like, and prefer, confident answers from people.

Shouldn’t the basis take the hit and not yall? I would ask that question anyway.
I’m still struggling with unrealized gains since nothing was sold…. Idk
I would get another opinion. Unless you just want it over with and sounds like you made a great purchase.