With the price of food beginning to increase, the underlying value of farm land has followed impacting the use of 1031 exchanges. Tax deferred exchanges have provided farmers multiple benefits besides deferring capital gain taxes when equal or greater real property is replaced. Some farmers elect for less labor intensive real estate such as oil and gas royalties, single tenant triple net leases with a CVS pharmacy or Tire America to owning commercial buildings with corporate client tenants in a tenants in common or TIC.
Benefits of a 1031
Benefits to taxpayers and farmers initiating 1031 exchanges include:
- Consolidate holdings;
- Diversify property mix;
- Relocating property to path of progress and greater cash flow;
- Replacing fully depreciated property for one that can be depreciated reducing offsetting tax on income;
- Replacing farmland with a vacation rental property;
- Selling at property market peak and reinvesting with property below market value.
These benefits are in addition to the interest free loan on the deferred tax dollars that otherwise would be paid out that are instead used towards the purchase of the replacement property.
Three Farm Land Trends
The Standard & Poor’s 500-benchmark index’s average annual return between 1950-2008 was 11.8 percent, while the return on farm land with current yield and capital appreciation was 11.6 percent. Three farmland trends contributing to the rise in farm land values are:
- Capital appreciation of the land.
- Current cash yield of the crops grown annually.
- Assets such as livestock, seed sales, mineral, oil, gas and water rights, hunting and wind rights.
Conclusion
With the continued improvement in farm technology, herbicides and disease resistant seeds, increasing farm yields are contributing to interest from investors wanting to include farm land in their mix of asset holdings. For farm land owners, this equates to how best to maximize their investment and 1031 exchanges represent a consistent strategy helping them to secure the desired yield.
Are you considering selling your farm land? Talk with us about how a 1031 exchange can benefit you.
We Can Help
Atlas 1031 Exchange has been accommodating tax-deferred exchanges of all kinds for more than 17 years. We are fluent in the rules and regulations of IRC Section 1031 and able to help you navigate your exchange.
Contact us today to discuss any questions you may have. Call our office at 1-800-227-1031, email us at info@atlas1031.com, or submit your question through the online form at the top of this page.
