Agriculture 1031 Exchange
Transition to Less Labor Intensive Real Estate
Agriculture represents many types of 1031 tax deferral eligible properties and applications including:
- Farmland Exchange - farms and ranches
- Mixed Use - primary residence and land
- Multi Use - real and property
- Oil, gas, mineral and water rights.
Smart farmers and ranchers upgrade or replace holdings in agriculture with other property by using a tax deferment tool called 1031 tax deferred exchanges. Funds resulting from savings on capital gains taxes represent an indefinite, interest free loan for acquiring higher yielding investments. Knowing what property can be exchanged, in what time frame will help you and your advisors take advantage of the tax deferment strategy and avoid potential risks.
Reasons for Exchanges
Farmers and ranchers engage in 1031 exchanges for reasons of diversification, consolidation, relocation, appreciation and replacing with less labor intensive cash flow properties other than agriculture. Once the often difficult decision to sell has been made, the question is what to do next? What are the tax implications? How will this impact my children?
Given your goals, perhaps it may be best for estate planning purposes to diversify the ranch or agriculture based properties into properties that can be eventually gifted to the taxpayer’s heirs. Alternatively, you may find it beneficial to consolidate multiple land tracts into one larger property. If the taxpayer is moving, relocating a property maybe the right choice. If the farm or ranch sales value has peaked, reinvesting into property in the path of progress for better appreciation is the right alternative. Finally, a less labor intensive cash flowing property can provide the passive income sought to supplement retirement while maintaining an investment property for the taxpayer’s beneficiaries.
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