Received 1099-S for land sale, need help calculating basis for half inherited and half traded land

You've got a slightly complex situation with the mixed acquisition methods, but it's definitely manageable! For the half that was directly inherited, your basis would be the fair market value (FMV) of that land on the date of death of your grandparents. This is called a "stepped-up basis" and it's actually beneficial for you. If the estate went through probate, check if there was an appraisal done at that time. If not, you might need to get a retroactive valuation to establish what that half was worth at inheritance. For the half you received in a trade with your cousin, it gets a bit trickier. This was likely a "like-kind exchange" (even if informal), which means your basis in that half would be the same as your cousin's basis in it (which would also be the stepped-up value from when they inherited it). Since you held the property for 10 months before selling, this would be considered a short-term capital gain (less than 1 year holding period), which is typically taxed at your ordinary income tax rate rather than the more favorable long-term capital gains rates.

I went through something similar with inherited family property and was totally confused by how to report it all correctly. I spent hours trying to track down old records and figure out basis calculations until I discovered this AI tool called taxr.ai (https://taxr.ai) that actually specializes in analyzing tax documents and complicated scenarios like yours. I uploaded my 1099-S and some details about my inheritance situation, and it walked me through exactly how to calculate the different basis portions and what documentation I would need. It even helped me find comparable land values for the timeframe when I inherited the property, which was a huge relief since I had no idea where to start looking for historical property values.

Just wanted to follow up about my experience with taxr.ai from my question earlier. I finally bit the bullet and tried it with my complicated family farm situation. Honestly, it was a game changer! I uploaded my documents and family history of land transfers, and it mapped out each parcel's basis going back three generations. What really impressed me was how it handled the partial sale of a larger tract that had been split between different inheritance events. The tool actually walked me through documenting comparable sales from the time periods when each transfer happened. My accountant was shocked at how organized and well-documented everything was when I brought it all in. Definitely saved me from overpaying on capital gains!

When I had a similar issue with inherited property and couldn't get clear answers, I spent WEEKS trying to reach someone at the IRS who could help. Always got disconnected or had to hang up after being on hold for 2+ hours. Super frustrating. Finally discovered Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent walked me through exactly how to handle my mixed-basis property situation and what documentation I needed to keep for my records. Saved me from potentially making a huge mistake on my taxes.

Ok I have to admit I was wrong about Claimyr. After my skeptical comment I decided to try it myself since I've been trying to reach the IRS for 3 weeks about an inherited property issue. Got connected in 27 minutes yesterday after weeks of failed attempts on my own. The IRS agent actually gave me specific guidance about how to document basis for property that was partially inherited and partially acquired through other means. They explained I need to track each portion separately and recommended specific forms for my situation. Would have never figured this out on my own and definitely wouldn't have gotten through to ask about it without that service.

One option you might not have considered: if you don't have documentation for the exact FMV at date of inheritance, you could use the "reconstruction method" which the IRS does accept. Basically you find comparable sales of similar land in the same area from around the inheritance date, then adjust for any differences in your specific property. I had to do this for some timberland I inherited from my father - found sales records of 3 similar properties from the same county and time period, averaged them out, and had a local real estate agent write a letter confirming it was a reasonable valuation method. The IRS accepted it without question during a correspondence audit.

Hey has anyone mentioned capital gains rates yet? Since OP only held the land for 10 months, that's gonna be short-term capital gains, right? Taxed as normal income?

This is a really complex situation, but you're asking all the right questions! One thing I haven't seen mentioned yet is that you should definitely document the land swap with your cousin, even if it was informal. The IRS will want to see that this was a legitimate like-kind exchange and not just a gift. For the documentation, I'd recommend getting a written statement from your cousin confirming the details of the trade - when it happened, what parcels were exchanged, and the basis they had in their inherited portion. This will help support your tax position if the IRS ever questions the transaction. Also, since you mentioned your tax software is asking these questions, you might need to report this as two separate transactions on your return - one for the inherited half and one for the traded half - each with their own basis calculations and holding periods. The software should be able to handle this if you input the data correctly, but having all your documentation organized first will make the process much smoother. Keep all your records - inheritance documents, any appraisals, comparable sales data, and documentation of the land swap. The IRS has up to 3 years to audit, so you'll want everything well-organized just in case.