Use a CRT for Retirement Income – Updated

In my post yesterday, I need to clarify one tax aspect of the post.  When a farmer contributes all ordinary income assets such as unsold grain, farm equipment, etc. the deduction that the farmer may get is limited to his cost basis in the assets.  Since unsold grain for a cash basis taxpayer has a basis of zero and most farm equipment has been fully depreciated, there may be little or no tax deduction by creating the CRT.

However, the power of the CRT is the deferral of the income from the sale of the grain and the equipment, not the income tax deduction on creating it.

One additional nice feature of the CRT is that there is no self employment tax owed on the sale of the unsold grain for a schedule F farmer.  In many cases since there is little or no cost to offset against the grain when the farmer retires, this tax savings could easily exceed $20,000 or more in the year of sale.

Thanks to a reader for catching this for me.