Benefits of Exchanging the Family Ranch with a 1031

Family Ranch 1031 Exchange

What are the benefits of doing a land exchange on the sale of a family ranch or farm? That's our topic for this 1031 exchange educational article.

2 Parts of Farmland

Farmers typically have a large plot of farmland that can be separated into two separate sections for tax purposes:

  1. A small homestead where they live
  2. Lots of tillable acreage on which they grow their crops

Section 121 & Section 1031

These two different parts of the farm can have radically different tax treatment. Under section 121 of the Internal Revenue Code there's a principal residence exclusion for the sale of one's principal residence or domicile that would be applicable to the portion of the property the farmer lives in and the little curtilage around that farmstead. The rest of the acreage is eligible for 1031 tax deferral because it's used in the farm or ranch’s business.

So we can have two different tax treatments for the disposition of one farm or ranch. The best strategy is to try to maximize the tax-saving benefits of both. Selling the family ranch in a 1031 exchange (coupled with a 121 exclusion), can bring huge tax savings for you and your heirs. 

  • 1031 Hotline: If you have questions about the benefits of exchanging the family ranch in a like-kind exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

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