1031 Exchanges of Farmland

1031 Exchange of Farmland

Farmers like to buy farmland. They know it, they understand it, and they feel comfortable 1031 exchanging into other farmland. But what do you do if the kids don't want to take over the farm and your farm has risen dramatically in value?

Cash-on-Cash Returns

Often the cash-on-cash returns from agricultural land pales in comparison to the cash-on-cash returns that you can get with a commercial property; not to mention the consistency and reliability of commercial rental returns that are not impacted by commodities markets, the weather, and potential changes for crop insurance.

So people that are getting out of farming may want to sell their farms at the top of the market and exchange that money tax-deferred into like-kind real estate that doesn't necessarily have to be more farmland, such as:

  • a CVS drug store
  • a Walgreens
  • a Kentucky Fried Chicken

Or it could be some other commercial property that's going to generate a steady eddy stream of income for the taxpayer.

Advantages of a 1031 Exchange

The advantage of doing a 1031 exchange is that you can gain a certain amount of diversity and safety by taking your money out of the land and exchanging it into one, two, or three replacement properties that might be a different business segments (retail, industrial, commercial, medical) and also might be in different segments of the country geographically.

So I might buy an Arby's in Texas, and I might buy a hotel in California. The idea is that I want to spread my money out so I don't have all of my eggs in one basket and I've created for myself a steady stream of income during my retirement years. The Mantra is to defer, defer, defer…die. You want to pass these properties on to your heirs so that they can receive the inheritance and step-up in basis on these replacement properties.

  • 1031 Hotline: If you have questions about 1031 exchanges of farmland, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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