jakescia - 1/5/2019 18:00

If buy now....…….

His tax return ought to have room in it, with the rental income from the land being gone, in event of sale now.

He probably would have mostly long term capital gains on the farm sale, and therefore if he is single, he would take about 40,000 into his tax return at 0% tax rate.

In addition, if he allocated the sale into two pieces-------- sale of his residence (the acreage portion) and the sale of the business portion (land and buildings)-------- then section 121 would allow the portion allocated to the acreage to come into his tax return and be excluded to extent of 250,000 of GAIN.

Therefore, he could sell to you now, and the payments could be set in order to keep the taxable income away from him.

Caveat------- be alert to the "imputed interest" rules.  A certain amount of interest has to be taken into the payee's tax return on such a sale, so such could eat up a portion of the 0% interest capacity.

However...…..if you want to get creative and really screw the govt...…..consider the following:

1.  Get an option to buy the land.

Option should be for a length of time beyond what his likely death would be.  Option payment would not be taxable income to him, nor deductible to you.  The option would lock up the land beyond his death, and would result in the girls not being able to sell to someone else.  Further, the terms would be negotiated now, between he and you, so the price would be set.

You could continue to rent the ground just like you are now.  You/he could take that amount into account when setting the price-------- or not, whichever you agree to.

2.  When he passes, his daughters would get a step up in basis to fair market value.

It would be likely that the price you/he agree on now, and include in the option, would be equal to or less than the fmv that would be set for estate purposes.

Therefore, when you exercised the option to buy, with his daughters being the owners at that time, the daughters would have sales price equal or close to the basis from the estate's step-up, and they would pay no income taxes on the sale.

Under the option routine---- you win, he continues to get a cash-flow that apparently has been acceptable in prior periods, and the daughters win because they would suffer little if any capital gains taxes.