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is inheriting land out of an LLC a taxable event?

Posted: Wed Feb 21, 2018 1:27 pm
by Magic75755
I need to know if this is a "taxable event." My parent passed away and our family farm is in an LLC. My brother and I have agreed to split the farm between us. If I receive my half as inheritance OUT of the LLC (and the LLC is owned by our mother's trusts), and other beneficiaries have agreed to take other assets in exchange for their portions, and I put the inherited land in my own farm LLC, is the transfer of this land a taxable event? I'd rather farm my own land under my own farm LLC - separate from my brother, and he would rather take the land and put it in his own farm, as well. We don't live in a state that has an inheritance tax, and the value of our each of our inheritance is under $500,000. We don't want to sell the land but keep farming/ranching. If I am given this land out of the LLC (part of the trusts) will I have to pay taxes on it? Would it be better for us to leave it in the family LLC tax wise? I really don't want to remain in a partnership. I've done most of the work, maintenance etc... on half the land (which I have leased for several years), and know that keeping it in partnership means I wind up with most of the expense and work while others have a million excuses not to pay their share, but then want an equal amount of the profits.

Re: is inheriting land out of an LLC a taxable event?

Posted: Thu Feb 22, 2018 12:20 am
by harmony
I am not sure of the answers to your questions, so please don’t draw firm conclusions from any of these ideas I am bringing up.

Has there been a big increase in the land value since it was put into the trust LLC? If this happened very recently, it might have even dropped in value since then. If it wasn’t too long ago, might the price of farmland go back down to the value when your last living parent died? Current low interest rates support high farmland values, but if interest rates go up, then land values may go down.

I found a prior thread viewtopic.php?t=169359 which deals with LLC real estate, a trust and an inheritance. (Note: I don’t know if LLC rules overlap state by state.) In the last post the OP is thinking of splitting the LLC into two. Would it matter if you had two LLCs? I wonder if you could split the trust LLC to avoid a taxable event (if indeed it would be a taxable event). You might end up with two farm LLCs but that could be a good thing if it prevents liability exposure across both farms. Since you already have one LLC, it sounds like you are aware of some advantages of an LLC. Would your liability insurance be cheaper with two separate LLCs?

Re: is inheriting land out of an LLC a taxable event?

Posted: Thu Feb 22, 2018 10:15 am
by riverguy
Your mother owned the interest in the LLC not the land. The LLC owns that. Separate legal entities so it seems like that would be a taxable event. Why don't you and your brother take over ownership of the LLC and dissolve it. Distribute the assets. Should not have any issues then.

Re: is inheriting land out of an LLC a taxable event?

Posted: Thu Feb 22, 2018 12:04 pm
by harmony
The LLC could have made itself subject to some terms dictated by the mother’s trust. The family should take both of these legal documents to a qualified professional to decipher the nuances for them. We have very little to go on since LLC rules can vary a lot.