Bought the Farm

[Ray in Ohio]

Tp buys his uncle's farm in May of 2007. Cost included farm buildings, 96 acres and 2 houses. In August, Tp sells off 7 acres of vacant land. What is the proper way to come up with a cost basis for the acres that were sold?

[jainen]

>>come up with a cost basis for the acres that were sold?<<

How did he determine what they worth at the time he signed the check? That was only a few months earlier; surely he remembers. Surely selling off the extra acreage was a big part of the plan.

[jasdlm]

If he financed the purchase through a bank, there will be an appraisal, and with any luck, the appraisal will break down the value of the land (by acre is usually how its done in my neck of the woods), each house, etc. I then use percentages calculated from the appraisal and apply them to the purchase price.

[Ray in Ohio]

What I normally do in a situation like this is take the appraisal from the real estate tax receipt and come up with a price for the buildings and price for the land accordingly. However, being it was the family farm, he got it for way less than FMV. With the figures from the appraisal he has a basis per acre of approx $1500.00. He sold the land for over $16K per acre. Is there anyway to figure his basis higher for these 7 acres (FMV at time of purchase?) and decrease the remaining basis in the acreage he still owns? he has no plans to sell more in the future, but selling these really helped a lot with start up expenses for a dairy operation. I am 'guessing' FMV of these acres would be close to what he actually got for them.

Let me know what you think.

PS, I now am gonna take the toothpicks out from under my eyelids. I've had enough for today. 3A to 8P = 17 hours and thats enough!! Good night! See ya in the morning!