Farmer Equals Step-Up – Share-Crop No Step-Up
Back in December 2016 we had previously posted on the Backemeyer Tax Court Case regarding a farmer who passed away after prepaying farm inputs. He was able to deduct those costs on this tax return. When his spouse inherited those assets, she was able to deduct the costs again on her Schedule F, due to the step-up in basis at his death. Essentially, the farm couple ended up with a “Double Deduction”.
If Mr. Backemeyer had been a share-crop landlord at the time of his death, the answer gets trickier. If he had purchased crop inputs and not applied them to the land, then these inputs would get a step-up in basis which his heirs could then deduct (again). However, if the inputs had been applied to the crop, they are then converted into a “rental asset” which does not get a step-up in basis. Also, if the landlord had received grain at harvest and then passed away before selling the grain, this does not get a step-up. This asset is considered to be a “receivable” that has not been converted to cash and under the tax rules, there is no step-up.
CliftonLarsonAllen has a service called Farm Tax Network that covers these tax subjects such as this case in more technical detail. If you are interested in subscribing to this service, please send an email to Cathy Olson at cathy.olson@claconnect.com.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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