2 Tax Deferral Strategies to Capitalize on Farmland Trends

Posted by Andy Gustafson on Wed, Aug 24, 2011

2 Tax Deferral Strategies to Capitalize on Farmland TrendsIn the midst of the stagnating economy and fears of a double dip recession, U.S. farmland and cropland values as a whole continue to be bullish. Farmland owners who made the decision to sell their current holdings should consider 2 tax deferred strategies while taking advantage of the trend.

This month the U.S. Department of Agriculture released a report stating:

“The United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $2,350 per acre for 2011, up 6.8 percent from 2010. Regional changes in the average value of farm real estate ranged from a 15.9 percent increase in the Corn Belt region to a 2 percent decline in the Southeast region. The highest farm real estate values remained in the Northeast at $4,690 per acre. The Mountain region had the lowest farm real estate value, $923 per acre.

The United States cropland value increased by $260 per acre (9.4 percent) to $3,030 per acre. In the Northern Plains and Corn Belt regions, the average cropland value increased 17.2 and 16 percent respectively, from the previous year. However, in the Northeast and Southeast regions, cropland decreased by 1.3 percent and 1.1 percent, respectively.”

Top Five States

State

Farm/Acre

% Change

Cropland/Acre

% Change

Iowa

$5,600

24.4

$5,700

23.9

Nebraska

$1,780

17.1

$2,960

17.9

Illinois

$5,700

16.3

$5,800

18.4

North Dakota

$   980

15.3

$1,040

19.5

South Dakota

$1,100

13.4

$1,810

16.0


Bottom Five States

State

Farm/Acre

% Change

Cropland/Acre

% Change

Rhode Island

$13,000

-4.4

$7,040

-1.5

New Jersey

$12,700

-3.1

$12,800

-3.8

Massachusetts

$11,000

-2.7

$7,040

-1.5

Georgia

$3,800

-2.6

$3,560

+0.6

Alabama

$2,050

-2.4

$2,350

-2.1


Factors Impacting Farmland Values

Fueling strong demand for farmland from farmers and investors is the result of a number of factors including:

  • Low interest rates
  • World demand for food commodities of corn, soybeans and wheat
  • Ethanol mandate
  • Weather
  • Improved farm technology
  • Disease resistant seeds
  • Reduced supply of available farmland for sale.

In addition to farmland demand, News.Gnom.es, a national newswire service, reports that “firms like Omaha-based Gavilon, owned by Ospraie, a hedge fund associated with George Soros and Canada-listed Ceres Global Ag have been buying up grain elevators from Wyoming to Toronto.” Evidently, given the demand for grain, warehousing and transporting have been uncovered as a profitable investment warranting non-traditional investors.

Common Denominator: Tax Deferral Strategy

So, how to capitalize on the surge in farmland prices? When the decision is made to sell the farmland holdings, tax deferral strategies need to be evaluated.

  • 1031 Exchange: One of those is whether to reinvest in like kind real property or not. Farmland and grain elevator businesses can be sold and capital gains taxes effectively deferred when replaced with like-kind property.
  • Deferred Sales Trust: If replacement property is not the intent, a Deferred Sale Trust can provide an alternative, deferring capital gains taxes, investing the proceeds and paying the recognized gain on a schedule that suits the taxpayer.

To learn more about how the benefits of 1031 exchanges for taxpayers owning farmland, download a free eBook.

Farmland and Ranch 1031 eBook
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Tags: 1031 farms, tax deferral, farmland

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