1031 Farmland for Commercial or Multi-Family

Leawood, KS · Member since 2017 · 2 posts · 0 votes

What is the best way to avoid paying Capital Gains when selling farm ground?
Is it possible to 1031 exchange farmland for a commercial or multifamily property?

The farmland has a home on the property. The land has been leased to farmers and hunters. Owner has never lived on this property and has owned it for 20+ years.

320 acres/ half section

Thanks!

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
@Brandon Hermreck, This was almost the classic example of 1031 transition we've done countless times for farmers. The only difference is that usually the farmer lives in the house and when they sell we take the allocation for the amount of the house and yards and the farmer gets that profit tax free from the 121 primary residence exemption.
The remainder of the farm land the farmer 1031 exchanges into other investment real estate and defers all tax on the sale. Sad but funny and true part of the story - most of the farmers end up making way more money in retirement from their cash producing real estate than they do farming.
Yes, for your scenario all of the half section and the house on site and all outbuildings could be exchanged in a 1031 for any other type of investment real estate.
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Joshua Wright
Financial Advisor · Leawood, KS · Member since 2018 · 60 posts · 20 votes
8y
Brandon Hermreck Hi Brandon. Saw you were in Shawnee Mission. I’m based in Leawood. If you proceed with a 1031 and don’t want to manage property, you might consider checking out Delaware Statutory Trusts (DSTs) as an option. There are some qualifications, but they’re passive entities which hold managed institutional real estate and are 1031 exchange eligible. You get the income off the real estate as well as the depreciation. Get the benefits without the headaches. I’ve had a lot of these conversations with clients this year who own highly appreciated family farmland and are getting rid of it. And I agree with @dave foster, I’ve seen a number of cases where the income from the new real estate investment is actually far higher than the farmland.
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