Don’t Forget the Crop in the Ground
Remember that you get to step up to FMV your crop in the ground
When a farmer dies in February, the seed and fertilizer are sitting in the shed, and everybody can see them. When he dies in June, that same seed and fertilizer are in the ground and most people never think about them again.
They should. A growing crop is an asset, it gets a step-up in basis, and on a decent sized operation it is frequently the largest income tax planning item in the entire estate.
Why the step-up applies
A growing crop is property the decedent owned at the date of death. It goes into the gross estate at fair market value, and under Section 1014 the heir takes that same fair market value as basis.
It is not income in respect of a decedent, because a growing crop is not income the farmer had earned or had a right to collect. The value used for estate purposes serves as the income tax basis of the unharvested crop.
The catch is who was farming it. To get the step-up, the decedent has to have been the farmer, or a crop share landlord who materially participated. A crop share landlord who was not materially participating does not get it. That share is IRD instead. For the passive landlord the crop is valued the same way, but the portion of the sale proceeds allocable to the period before death is IRD, and IRD gets no step-up. A cash rent landlord has no growing crop at all, just rent.
How you value it
Two accepted methods. Which one fits depends on how far along the crop was.
