1031 Land Exchanges Raising Values of Farm Land
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There is an undercurrent of frustration as farmers who live near cities are able to sell their land to developers and get top dollar. Since they still want to farm, they are going out further into rural areas and using the newly earned money to buy up land. This in turn is raising rural farm prices across America and causing frustration for the younger farmer. The reason for this is a provision in the tax code called 1031, which allows you to roll your capital gains from the sale of one property into the next property without having to pay taxes.
“If you’re in a situation where urban sprawl is going to pave you over and give you a certain amount of high-level compensation for that, and you have the opportunity to roll that into another piece of property away from that sprawl, getting 10 acres for one or five acres for one, it’s a good deal,” Nelson said during the Farm Bureau’s recent convention in St. Louis.
Conversely, Nelson said, “if you’re the farmer that lives next to where that money’s being rolled into and you get into a competitive bidding process, in most cases you cannot compete with the dollars being thrown at it.” Via AP
This is an interesting situation, and the answer according to some farmers is to change the 1031 tax code so that the proceeds can be rolled into a different type of investment to avoid the capital gains tax, such as commercial property or apartment buildings.
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