My wife has been unemployed for several years and she recently inherited money from the sale of a farm owned by her grandparents until their death. She was one of the beneficiaries. We're trying to figure out how to receive the funds and manage them in terms of capital gains tax. Is there any advantage to her filing taxes as married filing separately rather than jointly next year?

ANSWER

The BIDaWIZ Team's Answer:

Was the farm held in a trust? Typically, when property is inherited the basis steps-up to the fair market value at the time of death (Reference IRC Section 1014(a)). This would bode well for you as it would reduce the capital gains taxes that she would owe, if any. Do you know if the estate has properly filed these forms? In terms of filing status, it is usually most beneficial to file jointly. There are only rare instances, in which filing separately would make sense. In order for us to provide a more accurate assessment, we would need to know your adjusted gross income, whether you itemize or claim the standard deduction, your age, and whether your wife's basis in the farm inheritance steps up.