How do capital gains taxes work for selling farmland?How do capital gains taxes work for selling farmland? The farmland is in Iowa, and only about 25% of the total farmland is looking to be sold (around 40 acres). The farmland is not actually being used for farming purposes since the land is no longer really being farmed or used for business purposes... land has been owned since the mid 80's. When it is sold, will a 15% capital gains tax need to be paid (on a federal level) and an 8% capital gains tax to the state of Iowa? Or are there possible "exclusions" to this so that the capital gains tax doesn't have to be paid? It was my understanding that in order to be "excluded" from the capital gains tax on a federal level, what is being sold has to be your "primary residence"... since this is just 40 acres of farmland, I don't think this would apply... are there any other exclusions? Also, from an Iowa state level, it was also my understanding that you can be excluded from the state capital gains tax if you have owned the land for at least 10 years (which is true) AND you have had a material involvement in running the business for the past 10 years... since the land is not being farmed, would this exclusion not be valid? The land has been in the CRP program so, technically, money is being received for the land each year... but is this still considered a "business" and would this be valid for the capital gains exclusion? Additionally, wanted to get a sense if it is possible to bypass all capital gains taxes by doing a 1031 exchange and using the money from the farmland (or a portion thereof) to purchase another piece of property or a house in another state. Thank you so much! Any advice/help on this would be much appreciated.March 31 2012 - US00YesReport a ProblemProblemSelect oneOffensive contentIrrelevant contentSpam (pure self-promotion)OtherDetailsYour emailPlease enter a valid email address.Submit CancelContent flaggedWe will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.We're sorry. This service is temporarily unavailable. Please come back later and try again.