Is this considered income?

[cvap]

If a neighbor wants to give me some cash and a tractor in exchange for some land, what determines the value of the tractor and would it be considered income to me?

 

[xylene]

It is income. The tractor's worth is the fair market value, or FMV. You'll need to talk with some people who can appraise tractors.
A "tractor" could be anything from like 1000 to 300,000 or more so, kinda depends. Same thing with 'some cash', so..
The tax will depend on if you have any gains (your cost basis of the land) and how long you owned the land.

You should consult with a CPA.

 

[LdiJ]

It is income. The tractor's worth is the fair market value, or FMV. You'll need to talk with some people who can appraise tractors.
A "tractor" could be anything from like 1000 to 300,000 or more so, kinda depends. Same thing with 'some cash', so..
The tax will depend on if you have any gains (your cost basis of the land) and how long you owned the land.

You should consult with a CPA.

I do not really agree with this.

You are selling a piece of land. You have a basis in that land. Your basis is what you paid for the land plus the cost of any major improvements.

You are selling the land for cash plus a tractor. You will add up the value of the cash and tractor (the tractor appraised at fair market value) and you will deduct your basis and any selling costs from the transaction. The difference will either be your capital gain or your capital loss.

You may have to pay some use tax or registration tax in order to register the tractor, I would probably lump that in with selling expenses on the capital transaction for income tax purposes, since that would be needed to fully complete the transaction.

 

[xylene]

I do not really agree with this.

You are selling a piece of land. You have a basis in that land. Your basis is what you paid for the land plus the cost of any major improvements.

You are selling the land for cash plus a tractor. You will add up the value of the cash and tractor (the tractor appraised at fair market value) and you will deduct your basis and any selling costs from the transaction. The difference will either be your capital gain or your capital loss.

You may have to pay some use tax or registration tax in order to register the tractor, I would probably lump that in with selling expenses on the capital transaction for income tax purposes, since that would be needed to fully complete the transaction.

Capital gains is income which is given a special tax treatment.

I am commenting on the poster's ambiguity of 'some cash' and a tractor (a thing which can vary wildly in value) to how much help he may need.

 

[LdiJ]

Capital gains is income which is given a special tax treatment.

I am commenting on the poster's ambiguity of 'some cash' and a tractor (a thing which can vary wildly in value) to how much help he may need.

His specific question was if the tractor was income. You specifically said that it was.

It is not income. IF the total transaction results in a capital gain then there will be income from the capital gain. However, that does not make the tractor, by itself, income.

 

[xylene]

You are just wrong. This tactor is income and op almost certsinly will have to report this income on his taxes.

 

[LdiJ]

You are just wrong. This tactor is income and op almost certsinly will have to report this income on his taxes.

I am a thirty plus year, career tax professional.

Once again, the only potential income that this transaction will produce is a capital gain (it could also be a capital loss). Therefore the tractor, by itself, is NOT income. The fair market value, combined with the cash, will be the sales proceeds in this capital transaction. However, sales proceeds ARE NOT income. A capital gain that derives from a capital transaction is income.

In addition, as previously mentioned it can result in a capital loss, and it could simply be null as well. I haven't seen yet whether or not tax reform has eliminated the zero percent capital gains bucket.

 

[FlyingRon]

I am a thirty plus year, career tax professional.

I'll qualify that a bit. The sales price isn't income. However, it could result in a capital gain (likely in this case) or it could be gross receipts from a business if he was in the business of selling tractors. Either way, the sale price is reduced by either the basis or by the business expenses prior to it becoming "income."

 

[LdiJ]

I'll qualify that a bit. The sales price isn't income. However, it could result in a capital gain (likely in this case) or it could be gross receipts from a business if he was in the business of selling tractors. Either way, the sale price is reduced by either the basis or by the business expenses prior to it becoming "income."

Which is exactly the same thing that I said, (with the exception of the business of selling tractors) so I do not understand what you are qualifying.

 

[FlyingRon]

Which is exactly the same thing that I said, (with the exception of the business of selling tractors) so I do not understand what you are qualifying.

That it isn't necessarily a "capital gain" was the qualification I was making.

 

[cvap]

I wanted to determine if I could legally save money by taking a depreciable asset in lieu of cash. If we all are saying that the tractors value, however that might be determined, will be added to the cash received, and that number, minus the basis and cost of the transaction, will be taxed as a capitol gain, there is no difference to either of us in taking all cash and buying the tractor in a separate transaction? If he wanted to pay less cash for the land up front, by giving me the machine, he should at least pay any extra costs that may happen by doing it this way.

 

[Zigner]

Why not just buy the tractor as a separate transaction?

 

[Taxing Matters]

I wanted to determine if I could legally save money by taking a depreciable asset in lieu of cash.

The answer to that is no. The way this transaction is analyzed on your side of it is the same as if you received cash in the amount of the fair market value of the tractor + the additional cash in exchange for the land and then used the cash to buy that tractor at fair market value. This means that you end up recognizing either a capital gain or business income the same as if you had sold the land for all cash. You’ll end up with a starting basis in the tractor as the fair market value of the tractor.

If we all are saying that the tractors value, however that might be determined, will be added to the cash received, and that number, minus the basis and cost of the transaction, will be taxed as a capitol gain, there is no difference to either of us in taking all cash and buying the tractor in a separate transaction?

Correct.

If he wanted to pay less cash for the land up front, by giving me the machine, he should at least pay any extra costs that may happen by doing it this way.

That's up to the two of you to negotiate.

 

[cvap]

Thanks everyone. I know he will offer to let me use the machine forever with some kind of agreement signed on a napkin..

 

[xylene]

The answer to that is no. The way this transaction is analyzed on your side of it is the same as if you received cash in the amount of the fair market value of the tractor + the additional cash in exchange for the land and then used the cash to buy that tractor at fair market value. This means that you end up recognizing either a capital gain or business income the same as if you had sold the land for all cash. You’ll end up with a starting basis in the tractor as the fair market value of the tractor.

Oh, plus there is the risk the IRS will claim the FMV of the tractor was understated, and the costs of appraising the tractor. Since risk and apraisals have costs, it isn't really the same at all and a great example of why bartering for a non fungible good instead of money is not such a great plan.

And yes, it is income.