Farmland

2 Tax Deferral Strategies to Capitalize on Farmland Trends

2 Tax Deferral Strategies to Capitalize on Farmland Trends

In 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.

This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of LANDTHINK. Use of this content without permission is a violation of federal copyright law. The articles, posts, comments, opinions and information provided by LANDTHINK are for informational and research purposes only and DOES NOT substitute or coincide with the advice of an attorney, accountant, real estate broker or any other licensed real estate professional. LANDTHINK strongly advises visitors and readers to seek their own professional guidance and advice related to buying, investing in or selling real estate.

About the author

Andy Gustafson, CES

Andy Gustafson, Certified Exchange Specialist®, is a managing member of Atlas 1031 Exchange, LLC, a nationwide accommodator of Internal Revenue Code Section 1031. He founded the company in 2007, and has since expanded his professional services into Texas and the Midwest. He has spoken to hundreds of investors at Wealth Camps and Real Estate Investment Clubs nationwide and is a sought after speaker on the topic. As an approved continuing educational provider, he has helped hundreds of Realtors, Attorneys, and CPAs understand the application of the 1031 code. To date he has accommodated over 500 exchanges representing $433,000,000 in exchanged value and deferring over $22,000,000 in taxes.

6 Comments

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  • Interesting information Andy. Maybe in a future article you could give us a lay understanding of how the Deferred Sales Trust works.

    It’s also fascinating to me that farmland in the 3 states named in the NE is worth more per acre than cropland according to your charts. That must be equestrian plantations or mini-farms or something. That trend is definitely opposite of our market in Alabama.

    Thanks for sharing.

  • Hello Jonathan, another reason why NE farmland values maybe higher is the premium/demand placed on land in heavy metropolitan areas.

    Briefly, a Deferred Sales Trust is similar to an installment loan between the taxpayer and a trust holding the proceeds of their sale. Those funds are invested and paid out per directions of the taxpayer. It is an alternative to a 1031 exchange when the taxpayer does not want to acquire a replacement property yet, defer the capital gains. More to follow.

    Regards,

    Andy

  • Food is pretty addictive…need to find some usually at least three times a day. A quality acre of ground is more life and death important than a bar of gold. Food is the ultimate weapon for any nation. Have none and nothing else matters. Or that loaf of bread is the world, you will do anything to get it if your family is starving. We take quality, plentiful food for granted…. until it is scarce, missing, gone.

  • Could a Deferred Sales Trust be used in the interim of finding the right property to buy for a 1031 Exchange? How soon can the DST be sold for a 1031 Exchange or must there be a holding period like the 1031 has?

  • The DST will not work as a temporary place to park the money because it will no longer be like kind property. However, if suitable replacement property cannot be found within the time constraints of a 1031 and chose to do a DST, the trustee could purchase real property within the trust itself, under certain conditions. The short answer to your question is that the DST cannot be used to extend the 1031 exchange time periods.

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