The presence of unharvested crops in a decedent’s estate raises income tax and, if the estate is large enough, estate tax issues. The matter can be complicated if the decedent’s farmland was rented and crop rent had accrued but had not yet been received as of the date of the decedent’s death.
There are several possible ways to determine the value of unharvested crops. One approach is to arrive at a value by discounting the crop by the amount of risk involved between the date of death and harvest with the amount of risk tied to the type of lease involved. Alternatively, the crop could be valued by the amount of a loan, secured by the crop that could have been negotiated as of the date of death. Or, perhaps the simplest (and least beneficial to the decedent’s estate) approach would be to pro-rate the allocation of the crop proceeds between the pre-death and post-death periods. It is this pro-rata approach that IRS utilizes to address both estate tax and income tax issues involving unharvested crops in a decedent’s estate. In addition, some states (such as Iowa) follow the pro-rata approach for purposes of state-level taxes.
The full article is on TaxPlace.