Jeremiah owns farm land that he paid $20,000 for in 2009. In 2020, he planted a winter wheat crop on the land, incurring a $35,000 expenses. Jeremiah deducted the $20,000 of planting expenses that he paid in 2020. He pays the reamaining $15,000 of expense in 2021. Jeremiah sells the land together with the unharvested wheat crop for $110,000 in 2021. Determine the tax consequences of the sale of the land.
The tax consequences of the sale of the land and unharvested wheat crop will depend on how the sale price is allocated between the land and the crop, and the basis of each. First, let's calculate the basis. The basis of the land is $20,000, which is the original purchase price. The basis of the wheat crop is the total planting expenses, which is $35,000 ($20,000 paid in 2020 and $15,000 paid in 2021). Assuming the sale price of $110,000 is allocated proportionally between the land and the crop based on their respective bases, the sale price allocated to the land would be $110,000 * ($20,000 / $55,000) = $40,000, and the sale price allocated to the crop would be $110,000 * ($35,000 / $55,000) = $70,000. The gain or loss on the sale of each asset is calculated as the sale price minus the basis. Therefore, the gain on the sale of the land would be $40,000 - $20,000 = $20,000, and the gain on the sale of the crop would be $70,000 - $35,000 = $35,000. These gains would be reported on Schedule D of Jeremiah's tax return. The gain from the sale of the land would likely be treated as a long-term capital gain, which is generally taxed at
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