inheriting land

[irregardless]

This obviously is not my normal account and I'm not a very well known poster but some friends and acquaintances know my account and that I post here so I want to keep this on the down low for now.

My wife and I will be inheriting about 1.4 million (pre tax) after her family sells some farm land.

Her family is working with a very well known tax attorney and CPA (as will we once we get the money) but I was curious to see if anyone know the tax consequences for us? I have heard up to 50% tax, but that seems awfully high.

I am not supposed to know about this (yet) so I am posting my question here hoping to get some insight before my inlaws make the "offical" announcement.

I can provide more details on the land split, sale etc... if needed.

Edit: I guess it's more of gifting (not inheriting) since no one has died. The thought process behind selling the land now is 1)hypothetically if my grandmother inlaw lives another 15 yrs (hopefully very possible)we potentially would have a much larger sum than had we waited to sell the land. 2) My grandmother in law would like to see us spend (and enjoy) and little bit of the money while she is still alive.

[BuddyQ]

[ QUOTE ]
This obviously is not my normal account and I'm not a very well known poster but some friends and acquaintances know my account and that I post here so I want to keep this on the down low for now.

My wife and I will be inheriting about 1.4 million (pre tax) after her family sells some farm land.

Her family is working with a very well known tax attorney and CPA (as will we once we get the money) but I was curious to see if anyone know the tax consequences for us? I have heard up to 50% tax, but that seems awfully high.

I am not supposed to know about this (yet) so I am posting my question here hoping to get some insight before my inlaws make the "offical" announcement.

I can provide more details on the land split, sale etc... if needed.

Edit: I guess it's more of gifting (not inheriting) since no one has died. The thought process behind selling the land now is 1)hypothetically if my grandmother inlaw lives another 15 yrs (hopefully very possible)we potentially would have a much larger sum than had we waited to sell the land. 2) My grandmother in law would like to see us spend (and enjoy) and little bit of the money while she is still alive.

[/ QUOTE ]

I'm no CPA, but I was under the impression that the gift or inheritance is not income to the recipient and therefore tax free, but the 'giver' will pay a gift or estate tax, which have indivdual exemptions of 2 million, above that yes, its pretty harsh, like 50%. Wait until 2010, then the gift estate tax goes to zero.

[Henry17]

I'll assume you are in the United States and not respond. I'll check back later in case my assumption was incorrect and you need Canadian tax advice.

[riverdance]

you are much better off inheriting property than receiving it as a gift. this was the mantra of the late robert bruss

[irregardless]

[ QUOTE ]

I'm no CPA, but I was under the impression that the gift or inheritance is not income to the recipient and therefore tax free, but the 'giver' will pay a gift or estate tax, which have indivdual exemptions of 2 million, above that yes, its pretty harsh, like 50%. Wait until 2010, then the gift estate tax goes to zero.

[/ QUOTE ]
It's not my call. I am 100% sure they are selling the land if they can come to an agreement with one of the builders.

[ QUOTE ]
I'll assume you are in the United States and not respond. I'll check back later in case my assumption was incorrect and you need Canadian tax advice.

[/ QUOTE ]

Yes, We are in the US.

[bwana devil]

so to be clear, youre talking about receiving cash as a gift and not inheriting land?

[thing85]

[ QUOTE ]

I'm no CPA, but I was under the impression that the gift or inheritance is not income to the recipient and therefore tax free, but the 'giver' will pay a gift or estate tax, which have indivdual exemptions of 2 million, above that yes, its pretty harsh, like 50%. Wait until 2010, then the gift estate tax goes to zero.

[/ QUOTE ]

Some of this true, but not all.

We'll have to make some assumptions to understand the tax implications. First, we'll you receive the $1.4 million all at once. Next, we'll assume that the $1.4 million is split equally between you and your wife ($700,000 each). Finally, we'll assume the donor has not made any previous gifts.

There is an annual exclusion of $12,000 per donee (in 2007). So, the taxable gift for the donor to each of you will be:

700,000
(12,000)
=688,000 (for each of you)

Therefore, the tax (paid by the donor) for each of you would be 155,800+.37*(688,000-500,000) = $225,360 for a total of
225,360 x 2 = $450,720 tax due. However, there is a unified tax credit of $345,800. This should lower the tax liability to $104,920, for an effective tax rate of (104,920/1,400,000) = 7.5%.


Now, the details of your facts were not clear - if this is a grandmother giving the gift and it involves skipping a generation (i.e. she gives the gift to you instead of your parents), the Generation Skipping Transfer Tax (GSTT) may apply. I won't go into the detail, but this tax treats the gift almost as if it was given to you through the grandmother's estate rather than a regular transfer. Also, the amount of the tax paid by the grandmother would represent an additional gift to you, on which a gift tax would need to be paid.

Short answer: You'll need to wait and see what your CPA says when he/she has all of the facts, but the one thing I can say for sure is that, assuming there are no prior gifts given by your grandmother in-law, the tax should be minimal (i.e. much less than 50%).

[Mark1808]

[ QUOTE ]
This obviously is not my normal account and I'm not a very well known poster but some friends and acquaintances know my account and that I post here so I want to keep this on the down low for now.

My wife and I will be inheriting about 1.4 million (pre tax) after her family sells some farm land.

Her family is working with a very well known tax attorney and CPA (as will we once we get the money) but I was curious to see if anyone know the tax consequences for us? I have heard up to 50% tax, but that seems awfully high.

I am not supposed to know about this (yet) so I am posting my question here hoping to get some insight before my inlaws make the "offical" announcement.

I can provide more details on the land split, sale etc... if needed.

Edit: I guess it's more of gifting (not inheriting) since no one has died. The thought process behind selling the land now is 1)hypothetically if my grandmother inlaw lives another 15 yrs (hopefully very possible)we potentially would have a much larger sum than had we waited to sell the land. 2) My grandmother in law would like to see us spend (and enjoy) and little bit of the money while she is still alive.

[/ QUOTE ]

http://www.law.com/jsp/nylj/PubArtic...=1189760566209

It appears as their is no gift tax in Canada and they will simply pay a capital gain on sale of the property reducing the amount of cash available to you. Canadians pay tax on half of capital gains at a rate of 15.5% to 29%.

[irregardless]

Bwana, Thing85:

It's pretty complicated but the land will be sold to a developer for about 13 million. My wifes "share" is about 1\9 which is about 1.4 million. This is derived from 1\3 going to her grandmother, 1\3 to her uncle, and 1\3 to her mother. Her mothers portion is being split equally between my wife, her brother and her mother (1\3 each).

I'm not involved in the conversations so I dont know how it will be sold and transferred. Maybe the land is transferred (gifted) to each person then sold, or maybe it's just sold then the cash is dispersed. Thats what the CPA\Tax Attorney is working on.

The grandmother has something annually set up to gift land to everyone but it goes into a partnership, which I think is a trust. Im not sure how thats set up and they are looking to see if it makes financial sense to have the partnership give the land back to the grandmother before its sold.

Thanks for the input all, hopefully it is much less than 50%.

[RJT]

If you are receiving either a gift of $$ or the land - you owe no tax. The folk giving the gift to you might have tax issues.

If you receive land and not $$, then you will need to know what your basis is so that in the future if and when you sell the land, you will know what your gain is.