At a Glance
• How farmland ownership structures affect stepped-up basis for heirs
• Key differences between individual ownership, joint tenancy, and tenants in common
• How trusts, LLCs, and life estate deeds may influence tax outcomes
• Why land title should align with farm transition and estate planning goals
For many Nebraskans, agricultural land is the most valuable asset they own. While much attention is given to who will inherit land, how the land is titled can be just as important, especially when it comes to whether heirs receive a full stepped-up basis, a partial step-up, or no step-up at all.
Understanding how land title affects stepped-up basis can influence future capital gains taxes, leasing decisions, and long-term farm transition planning.
What Is Stepped-Up Basis?
When a person inherits farmland, the tax “basis” of that property is generally adjusted to its fair market value on the date of death. This adjustment, commonly referred to as a stepped-up basis, can substantially reduce or eliminate capital gains taxes if the land is later sold.
However, not all ownership structures result in the same basis adjustment. The title on the deed often determines how much of the land qualifies for a step-up. The general rule of thumb is that if the land was included in the estate at the time of death, it can qualify for a stepped-up basis.
Land Ownership Structures and Their Impact on Basis
Individually Owned Land
Land owned solely by one individual, sometimes called “fee simple” ownership, generally receives a full stepped-up basis. The heir’s new basis becomes the land’s fair market value at the time of the owner’s death.
Nebraska example:
- A Nebraska landowner purchased farmland decades ago for $2,000 per acre. At death, the land is worth $10,000 per acre. The heir’s basis steps-up or resets to $10,000 per acre, eliminating capital gains tax on prior appreciation.
Joint Tenancy with Rights of Survivorship (JTWROS)
JTWROS is common especially among spouses and family members. Land in JTWROS is owned equally in amount by all members, meaning that the owners own equal portions of every acre. It is important to note that at the time of one of the JTWROS owners’ death, the other owners automatically inherit the full share and it does not follow the deceased will or other estate planning documents. Whether or not JTWROS land will receive a step-up in basis or not will depend on if the owners are married or not. For married owners, the deceased spouse’s ownership share receives a step-up. For non-spouse joint owners, the surviving owner may receive full, little, or no step-up depending on who originally paid for the land.
Nebraska example (married couple):
- If spouses own farmland jointly and one spouse dies, generally only 50% of the land receives a step-up in basis. The surviving spouse keeps the original basis on the remaining 50%.
Nebraska example (parent & three children):
- If a parent paid for 100% of the land, is properly documented, and added the children to the title, then the children are likely eligible for a full step-up in basis.
- If a parent paid for 100% of the land, without proper documentation, and added the children to the title they may receive a little or no step-up in basis.
- If everyone contributed a portion then the land (Parent 25%, Child 1, 2, & 3 each own 25%), then the land would be eligible for a partial step-up in basis for the deceased owner’s share. The remaining three owners would receive a 25% step-up in basis.
Tenants in Common
Tenants in common is a way of sharing ownership of property among two or more persons in which each tenant holds an undivided interest in the property, and the tenants may own interests of differing sizes, meaning that each person owns a portion of every acre but does not have to be equal shares. Upon the death of a common tenant, his or her interest in the property passes through inheritance as directed in the will or other estate planning documentation and does not divide among the other owners as there is no right of survivorship, an important difference from JTWROS. Each owner’s share receives a stepped-up basis only upon that owner’s death.
Nebraska Example (on-farm sibling 70%/off-farm sibling 30%):
- If siblings own land as tenants in common, only the deceased sibling’s portion receives a step-up, not the entire property, regardless of whether it went to the other owner or to the deceased sibling’s heirs. If on-farm sibling passed, the land would receive a 70% step-up in basis for that sibling’s heirs.
Trust Ownership
Trusts can be powerful estate planning tools, but their impact on stepped-up basis depends on the type of trust. Revocable living trusts generally allow for a stepped-up basis at death, similar to individual ownership. Irrevocable trusts may limit or eliminate stepped-up basis, depending on how the trust is structured and when assets were transferred. Because trust language and timing matter, landowners should work closely with legal and tax professionals when farmland is held in trust.
For example, if you removed the land from your estate with an in-life gift to an irrevocable trust, the step-up in basis is eliminated as it did not pass through your estate.
LLCs and Other Entities
Some farmland is owned through LLCs or partnerships, often for liability protection or multi-owner management. Entity ownership can complicate basis calculations and should be reviewed carefully as part of transition planning. The tax outcome can differ depending on operating agreements and a stepped-up basis may apply to the ownership interest rather than the land itself.
For example, the step up depends on the tax treatment. Partnerships can get the step up through an election made by the partnership, corporations cannot.
Life Estate Deed
Most life estate arrangements for farms and ranches allow one person to use the land during their lifetime while someone else owns the land, with control passing to the owner upon death. Essentially, the landowner gifts the land to someone (typically their child) while keeping control and earning income from the land.
In many cases, land transferred through a life estate arrangement may still receive a stepped-up basis as it would still be in their taxable estate upon death. It is important to note that estate rules focus on retained rights at death while Medicaid rules focus on ownership and control as well as timing of transfers, which is why it is important to work with tax and legal professionals.
Practical Tips for Landowners
- Review deeds. Many families are surprised by how land is titled.
- Coordinate title with estate goals. Ownership structure should support, not undermine, transition plans.
- Communicate with heirs. Title decisions affect taxes and management long after ownership changes.
- Seek professional guidance. Estate planning, legal, and tax professionals should work together.
Final Thoughts
Stepped-up basis is often viewed as an issue, but under the current tax laws, it is only important if someone wants to sell the farm or ranch. Nebraska landowners should take time now to think about their goals and the goals of their heirs, understand how the land is titled, and how it interacts with stepped-up basis.
In addition, a stepped-up basis for depreciable assets, such as pivots, wells, fences, and buildings can generate a "free" depreciation deduction, even if assets are retained. A stepped-up basis may also provide added protection if future legislation is enacted that would tax unrealized gains periodically.
Sources:
When Does a Life Estate Get a Stepped-Up Basis? - LegalClarity. (2025, December 5). https://legalclarity.org/when-does-a-life-estate-get-a-stepped-up-basis/
Estate Planning: Stepped-Up tax basis | Center for Agricultural Profitability | Nebraska Extension. (2024, August 1). https://cap.unl.edu/news/estate-planning-stepped-tax-basis/
Publication 551 (2025, December), Basis of Assets | Internal Revenue Service. https://www.irs.gov/publications/p551
