Elk Mound, WI asked in Tax Law for Wisconsin

Q: My parents own 40 acres of land in Eau Claire Wis. Dad wants to sell me the 40 acres now for 1$. What taxes will I pay?

My parents own about 320 acres of land. 280 acres is located in Dunn County, Wisconsin.

They also own a 40 acre parcel of hunting land in Eau Claire County, Wisconsin.

My father is determined to sell me the 40 acres of hunting land for 1$. He would like to "sell" it to me now.

The fair market value of this 40 acre parcel of land is $66,600 (taken from 2012 taxes).

My father and mother live in Elk Mound Wisconsin.

I live in McHenry Illinois.

What are the advantages and disadvantages of receiving this land from my parents while they are alive?

What would be the tax implications for my parents and for me?

Would it be wiser to transfer this land after my father and mother are deceased?

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1 Lawyer Answer

Zaher Fallahi

Answered
  • Tax Law Lawyer
  • Los Angeles, CA

A: I applaud your articulation of the facts and the pointed questions. Based on the facts you presented, if they sell you the land for $1, this is construed as a gift ($66,599) to you. If you sell it now, you will have to pay taxes on the $66,599, as ordinary income or short term capital gains. If you sell it after 365 days, you pay taxes based on long-term capital gains of now 15% for the IRS and the state, if any.

If you receive the same property at their death and sell it right away, your basis is stepped up to the fair market value of the property at death and you owe no taxes.

If they gift it now, they must file a gift tax return for the whole amount, no taxes until they reach $5,250,000 each. If you inherit this property, that will be included in their estate tax returns, which is tax free up to $5,250,000 each. Please consult tax or estate planning attorney, Good luck.

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