Profile picture for user226023

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 - US
  • 0
    0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We 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.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

 
 

Answers (4)

Profile picture for Ofe Polack
Contact your tax accountant and if he/she is not familiar with this type of transaction, seek a referral.  Good luck
  • April 01 2012
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We 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.

Profile picture for hpvanc
It has to be a "like-kind" property, so it would have to be farmland rather than a residence.  Farmland with a residence on it can probably used even if the property being exchanged does not have one.  I'm not sure what effect the CRP program will have on your exchange, I do know of exchanges where the new farm was not for the same type crop as the exchanged property.  I don't know the Iowa rules, but state laws generally follow and have the same allowances as federal and Iowa laws tend to be very pro-agriculture.  I don't know how prorate may be calculated if you choose to do a partial exchange and keep part of the gains.

You will definitely need to have a good agricultural CPA/attorney.  There is also a strict time limit, the exchange property has to be identified within 45 days and close within 180 days. 
  • April 01 2012
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We 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.

Profile picture for wetdawgs
Please review the situation with a tax accountant with experience in farmlands.

As you describe the property as not a business property and not an investment property, it is hard to see it fitting into the guidelines of the IRS for 1031 exchanges here.   Let us know what the accountant thinks.

  • April 01 2012
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We 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.

You need to retain a tax attorney or a CPA who is familiar with agricultural property.
  • April 01 2012
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We 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.