Can Agricultural Farmland Be Used In A 1031 Exchange?

Can Agricultural Farmland Be Used In A 1031 Exchange?

Can agricultural farmland be used in a 1031 exchange?

As land prices for farmers and ranchers have increased so have taxes. A 1031 exchange can be a tremendous tax-saving opportunity. The increase in capital gains rates and the healthcare tax will warrant prudent tax planning by today’s family farm.

Successful 1031 Exchanges for Farms & Farmland

One of the benefits of a 1031 exchange is that like-kind real estate refers to almost any investment real estate. For example, you can sell farmland to purchase other investment real estate. Other examples of like-kind real estate include rental houses, duplexes, condos, TIC interests, ranch land, or commercial property.

Another recent example involved a large chicken farm in southern Iowa. The farmers were able to secure a buyer and allocated the purchase price between the land value and the business. The business portion is taxable immediately, while the land sells using a 1031 exchange. Then the seller reinvested the land proceeds into tillable farmland. The couple now owns a rental property that they will rent to local farmhands. No tax is due on the land sale, assuming that land of greater value is purchased.

Other land sale and land rights tax-deferral opportunities for farmers include:

  1. You can separate the homestead on the property to take advantage of the Section 121 home sale rules to eliminate $250,000 per person or $500,000 per couple.
  2. Exchange water rights as real property in states that consider water rights to be real property.
  3. Mitigation credits can be exchanged for other mitigation credits, making certain land more valuable to developers.
  4. You can exchange mineral rights as real property on certain land because they are separate deeds.
  5. Exchange unused land with timber or forest for other real estate.
  6. You can exchange easements for other easements to grant rights to certain properties as well.

For additional and more detailed information about 1031 exchanges, call

Granite Exchange today at 800-899-6959.

Our Certified Exchange Specialists® (CES®) can explain the process and guide you through every step of the exchange to ensure that the exchange is done properly.

STRATEGIC PARTNERSHIPS

We are proud to have long-standing relationships with the intermediary community and have a designated team supporting relationships with escrow officers, lawyers, accountants, tax advisors, investment consultants and corporate finance professionals.