Conserve stepped-up value
I own a quarter-share interest in a farm (40 acres) given to me and three other grandchildren by my grandfather. The farmland has appreciated from about of little else, would I be better off to give the property to my two daughters or will it to them. Or, should I sell it, pay the capital gains tax and give them the cash? E. J.
Since you are single, you can offset the full value of the 40 acres for federal income tax purposes with a credit that protects an estate up to $175,625 . the value of the land is stepped up from its basis of $300 per acre to current market value when figuring your estate's value. Thus, by turning the land over to your daughters as part of your estate, you avoid the capital gain tax that would be payable if you sold the property. Later, if your daughters sell the property, their basis will be the stepped-up value, and they will pay a far lesser capital gain tax if any. Your daughters will be liable for an inheritance tax on the value they receive individually. As long as the problems of running the farm, taxes, and possible losses of income are not overly troublesome, I suggest not selling but allowing the property to pass to y our daughters through your will.