Selling the Farm or Ranch
When selling the family farm or ranch, the amount of capital gains tax you owe will be greatly dependent upon how proactive you are about planning for the sale. We’re here to help.
Many factors can affect your tax bill and therefore your financial state. We can help you address these issues proactively – therefore, the right time to call us is long before you have a buyer for your farm or ranch. Below are five of the key issues you should consider well ahead of the sale:
How Your Farm or Ranch is Owned
Owning real estate in certain types of entities (i.e., partnership, LLC, S Corp, C Corp, etc.) can present challenges when the property is sold, particularly if different parties have different reinvestment goals. Solutions do exist, but some require advance action.
Whether the Sale Includes a Home
Selling a farm or ranch often involves disposing of business property, such as land and outbuildings, as well as non-business property like a home. Although the land and outbuildings can be exchanged in a 1031 exchange, the home cannot. But there is a way to exclude from taxes up to $500,000 of gain on the sale of your home.
Whether Your Ranch Consists of Separately Deeded Parcels
Ag properties that have been aggregated over generations are often composed of multiple separately deeded parcels. If you plan to perform a 1031 exchange with some of the sale proceeds and to take some of the proceeds in cash, cost basis planning is a simple and wise strategy for doing so cost-effectively.
Whether You Complete a 1031 Exchange
The 1031 exchange is one of the most powerful wealth-building strategies available for folks selling highly appreciated real estate. To reap the benefits, strict requirements must be followed.
How and Where You Invest the Sale Proceeds
Before considering any investment options, you should first determine your income needs and risk tolerance. Typically, our clients desire a secure investment more than high returns. If you want long-term, steady income with little or no management responsibilities, high quality commercial real estate may be an excellent option to consider.
For further information, please refer to our Straight Talk guide, "Selling the Family Farm or Ranch: What you Need to Know."