Farm into rental


W

Wayne Rivers

Question: Taxpayer ran a farm for many years, accumulating
depreciated assets such as farm buildings, equipment, etc.
Due to health issues, he was unable to continue farming, but
started renting out his buildings to another farmer.

Would it be reasonable to convert the farm buildings into
rental property? If we include the rental income on the farm
form as has been done in the past, taxpayer would be owing
self-employment taxes when he isn't really "self-employed".
How would the assets be converted over? At their
depreciated value?

Thanks

Wayne Rivers, CPA
 
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M

Mark A. Hvasta, CPA

Wayne Rivers said:
Question: Taxpayer ran a farm for many years, accumulating
depreciated assets such as farm buildings, equipment, etc.
Due to health issues, he was unable to continue farming, but
started renting out his buildings to another farmer.

Would it be reasonable to convert the farm buildings into
rental property?
seems reasonable

If we include the rental income on the farm
form as has been done in the past, taxpayer would be owing
self-employment taxes when he isn't really "self-employed".
How would the assets be converted over? At their
depreciated value?
I'm not sure that there's a formal "conversion" that you
need to do. I assume the taxpayer had been filing Sch C for
his farming activities in the past? If yes, but he has
changed from farming to renting his property rather than
working it, he's no longer conducting business as a Sch C
taxpayer but rather is in the business of renting property
which is reported on Sch E. Even in the Sch C years, rental
real estate income should have been reported on Sch E, there
may be amended return, refund of SE tax opportunities.

Re: basis of assets, yes, it's carryover basis for the
rental activities. Therefore, if they were fully depreciated
in the past, there's not depreciation deductions to be taken
currently.
 
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G

Gil Faver

seems reasonable
I'm not sure that there's a formal "conversion" that you
need to do. I assume the taxpayer had been filing Sch C for
his farming activities in the past? If yes, but he has
changed from farming to renting his property rather than
working it, he's no longer conducting business as a Sch C
taxpayer but rather is in the business of renting property
which is reported on Sch E. Even in the Sch C years, rental
real estate income should have been reported on Sch E, there
may be amended return, refund of SE tax opportunities.
Farming is reported on Schedule F
Farm rental is reported on Schedule 4835
 
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H

hlunsford

seems reasonable

If we include the rental income on the farm
I'm not sure that there's a formal "conversion" that you
need to do. I assume the taxpayer had been filing Sch C for
his farming activities in the past? If yes, but he has
changed from farming to renting his property rather than
working it, he's no longer conducting business as a Sch C
taxpayer but rather is in the business of renting property
which is reported on Sch E. Even in the Sch C years, rental
real estate income should have been reported on Sch E, there
may be amended return, refund of SE tax opportunities.
Farmers report their activities on a schedule f, and not a
schedule c, so I hope this was the case with the OP.

And nothing in OP saying in the past farmer Jones rented
property. so not a question of ever amending those earlier
years.
Re: basis of assets, yes, it's carryover basis for the
rental activities. Therefore, if they were fully depreciated
in the past, there's not depreciation deductions to be taken
currently.
right! But of course any remaining depreciation may be
continued on form 4562 for the rental activity.

ChEAr$,
Harlan Lunsford, EA n LA
 
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