Thinking of selling the farm? Then you’ve probably wondered about potential tax implications. Many owners of nonresidential real estate, particularly those who own farms and ranches, have heard of a 1031 tax free exchange.
Most investors seldom use one of the most valuable techniques for increasing and preserving their wealth. A Section 1031 property exchange allows property owners to postpone capital gains taxes on the sale of qualifying assets.
To help clarify some of the issues around a 1031 tax free exchange and answer questions, Farmers National Company the country’s largest Agricultural Services and Farm Real Estate Company is sponsoring a seminar on December 5th.
Featured at this seminar will be professionals from agricultural real estate, finance, and commercial real estate to help owners make sense out of all the issues surrounding 1031 exchanges.
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The intent of the seminar is to allow attendees to get an overview of the entire 1031 Exchange process with an eye to determining if it might be of value to them. The presentations are meant to be interactive and plenty of time will be available for questions both during and after the presentations.
Owners of real estate that might sell for a substantial profit may have wondered whether there’s a way to avoid or minimize the taxes that would result from such a sale. The answer is yes, if the property is business or investment related.
Normally, the gain from a sale of a farm is taxable as long term gains. Section 1031 of the Internal Revenue Code provides a way to postpone the tax on the gain if the property is exchanged for a (like kind) property that is also used in business or held for investment. These transactions are referred to as 1031 exchanges.
It is important to note that these exchanges are not “tax-free” but are “tax deferred.” As with all things tax, there are rules and regulations to be followed to ensure that the transaction qualifies, such as:
A personal residence or a vacation home won’t qualify.
The properties must be of like kind. But the definition is quite broad for real property — for example, it is OK to exchange raw land for an office building, a single-family residential rental for an apartment building, or land in the city for farmland or vice versa.
The property acquired in an exchange must be of equal or greater value to the one you gave up, and all of the net proceeds from the disposition of the relinquished property must be used to acquire the replacement property. Otherwise, any unused proceeds are taxable.
There are some obvious advantages such as:
Taxes can be deferred — The main reason most people choose to do a 1031 exchange is so taxes don’t have to be paid currently on the gain that would result from selling the property
Asset accumulation — The money saved from not paying tax on the sale gain can be retained as part of your estate to be passed to your heirs. Your heirs receive the property with step up in cost basis at your death.
But as with most such issues the rules can seem confusing. That’s why Farmers National Company is hoping this seminar will start people on the path of understanding the process of a 1031 Exchange.
It is recommended that you consult with legal, tax and financial professionals before making a decision on how to proceed.
The seminar will be held in Overland Park Kansas December 5thth at 2PM and will be repeated at 7PM. Seating is limited, so even though the seminar is free, attendees are asked to register. For location information and to register, visit www.KCLandSeminar.com call Farmers National Company at 913-837-4665, or email WGaughan@FarmersNational.com. On the web you can visit www.FarmersNational.com/KC .
Farmers National Company has sold over 3,500 farms (over 1,100 at auction) during the last five years and currently manages more than 4,850 farms and ranches (2.1 million acres) in 24 states. Additional services provided by the company include auctions, appraisals, insurance, consultation services, oil and gas management, forest resource management, lake management, FNC Ag Stock, and a national hunting lease service. Visit the Farmers National Company website at www.FarmersNational.com.