This may be too complicated of a question for here, and I would like my grandparents to just hire a tax CPA or enrolled agent, but I thought I would ask here first. He sold his farm (secondary to his primary residence) in 2023 and all buildings/equipment to another guy, for a substantially higher price than he originally bought it.
My gut says that all the regular expenses over the years are just bills and maybe improvements to the land COULD be expensed, plus sellers fees (realtor, etc) if applicable? I don’t really know, and internet research has been spotty. My grandpa thinks everything is expensed, but he is tax illiterate and stubborn (LOL), so here is the situation:
My grandparents bought some land about 25+ years ago. My grandfather built a farm house (where he would stay on the weekends) that cost about $25,000 or so, mowed and cleared the land, to make it suitable for planting pecan trees. Eventually he planted ~75-100 pecan trees and maintained the land by mowing, spraying, etc every season. In addition to that, he paid utilities, for a mower, etc to maintain the land. Sorry, forgot to mention this property was also ~3 hours from his primary home, so he also thinks his travel is an expense.
I know a professional would help, BUT if anyone knows of an IRS publication or has personal experience with this, please share, any advice is welcome. Thank you all.
There’s not enough information to do much in terms of advice. It appears you are asking about a combination of selling expenses, property improvements, basis cost and the expenses of operating a business on a property that was sold last year.
Your grandpa’s biggest problem might be taxes on gains and the possibility that the sudden increase in total income could push him into a higher capital gains tax bracket.
If he’s unaware of the tax implications of a sale that’s already occurred, he could have a real problem on his hands. In my opinion, unless you are talking about a gain of less than $500K he needs a tax professional’s help.
IRS forms:
Business Income
Capital Gains
Hopefully he treated the farm as a business, filing 1040 Schedule F all along. His accountant/tax person should be able to guide him.
On my farm, most of the property was a business expense. Part of the vehicle expenses (gas, oil, registration, taxes, repairs, etc) are business related because I use the truck to pick up materials, take product to market, etc. Fertilizer, hired help, planting costs… all business expense; all of the expenses on the working of the farm are deductable. Costs (often losses) can be carried forward to later years.
He may be able to refile and restate those items, but a tax expert is needed.
I agree. That’s basically what I’ve been telling him is that his situation has many tax implications that he was not prepared for, nor advised of, prior to any of this. I appreciate your help. I think I’m looking for more of a confirmation that he needs a professional’s help!
This is all great information, and yes that all makes sense to me. Unfortunately, I have no idea about his prior tax returns, but my Aunt and I are trying to figure out the best path for him forward, so we will be requesting some old information, and hopefully passing on to a tax professional! Just in the past year, we have had to take more care of him and my grandma (for health reasons) and we are picking through one situation at a time. I appreciate your confirmation that a tax expert is needed! I have no intention of “doing his taxes”, I think that’s why he went to my aunt first, and she felt bad, so she was trying her best. That’s when I stepped in and said wait a second, this is a much bigger undertaking than you think it is. Anyway, I will try to convince them that an expert’s advice and help with paperwork is sorely needed. I appreciate the help and explanations.
Try explaining it to him in terms of dollars for fines & penalties.
First thing you need to do is find as many years of previous returns (and any supporting data) as possible. That will give the CPA some history to work with. I echo the comment about hoping he filed forms treating it as a farming business