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.
Categories: Farm Industry Trends, Farm Leadership, Farm Operations, Farm Taxes
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December 24th, 2011 at 6:58 am
Would this work for someone who is not retiring? I have carried over quite a bit of grain and will have a much larger income than usual when I sell it. Could I place that it a CRT and continue to farm? What is the cost of administering a CRT? Can I set one up and add to it in later years
December 27th, 2011 at 4:57 pm
The short answer to your question is yes you can use this even if you are still farming and depending on how you set it up, can add to it later on. The cost of administering the trust is probably $2-$3,000 on an annual basis and perhaps a little bit more to set up.