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Thanks, Jack, and others. It's farmland (it's cropland, but i guess I assumed that) that is probably worth 4000-4500 an acre from what I can glean...has been growing crops such as corn and beans for years. I know what he capital gains would be. I would like the flexibility of having the money. The land was gifted a few years ago and the cost basis is low so there would be a sizable capital gains tax plus, if based on Arizona residency, I think an AZ state tax.
Thanks for the ideas.
I'm not familiar with Arizona taxes, but if Arizona would take a slice of your gain it might be best to sell before moving to Arizona. You mentioned that it was "gifted". I assume that you are correct in that description...but it wasn't possibly inherited, was it? Some people erroneously interchange the two but, of course, there is a big difference in how the basis is calculated for each.
What matter is having not all your eggs in one basket. If your farmland is the major part of your capital then yes you should sell some/all and put your money in diversified account, meaning some bonds some stocks, some cash, some real estate.
You won't know how much your land is worth until you talk to several ag brokers and get an average price per acre. Cash money has a way of opening up ideas that you never thought of.
You mention that it's rented right now? Is it the whole parcel?
I would entertain the idea of a seller-financed deal to the current tenant, if there's only one. Give them the opportunity to lock up the land, collect a chunk of money up front as security and have a RE atty drawn up a contract. They default, you foreclose and then sell it.
Might be able to get the best of both worlds... talk to a good RE attorney and see what they think.
Yes tax deferred & due upon sale could be a concern.
But I was thinking more about income tax farm operating loss carry forwards 20 years (or back I think 5). Talk to your tax person about tax implications of farming as pertains to non-primary occupation & how it applies to you--or could apply to you if you were a partner in farming operation instead of landlord.
In 2015 I sold part of my farmland in IL to my brother. The whole process took TWO YEARS! You're going to have to start with a real estate appraisal of your specific land done by an appraiser who specializes in farmland before you can do anything else; there's no way around that.
I opted to do a 1031 Exchange with the proceeds, which means that I did not have to pay capital gains taxes on the land sale. My sister was tired of thinking about it all and just stuck the money in her investment funds, so she ended up paying a giant ton of taxes.
I'm going to give you a very basic explanation of a 1031 exchange below, but first want to say: talk with not just 1 but 2 or 3 CPAs in your area of SD about what a 1031 exchange is and how they will handle the filing. The reason I say talk to more than 1 is because I took the advice of the first CPA I talked to and lost money - it took the 2nd CPA to unscrew everything up with the IRS. The reason I say talk to a CPA is because you shouldn't trust a stranger on the internet about anything (even though I'm being as truthful and clear as I can be.)
A 1031 exchange basically allows you to EXCHANGE income producing real property for the same value (dollar for dollar, not acreage for acreage) of other income producing real property without having to pay capital gains taxes.
What I did was use the money from the sale of part of my Illinois farmland to buy more farmland in South Dakota. Because my land in IL was appraised at a higher rate than the land in SD, I got more acreage in SD. I also had $ left to go in with my brother to buy orchard land in his state. So now I have agricultural income in 3 different states. Combined with investment income (stocks and bonds) I feel I have pretty diversified income now for retirement.
But a 1031 exchange doesn't mean you have to buy farm land with the sale of your land in SD, just some kind of income producing property.
So what you COULD do with the proceeds is buy a small apartment building or mobile home complex or duplex in AZ (depends on how much money you get.) Or even a different kind of commercial property, like a bed and breakfast house, or land that has a warehouse or minimall or something on it.
Here's the rub, though - the IRS doesn't make things easy for you. You can't LIVE on the new property you buy with a 1031 exchange for a period of time - I forget how long - somewhere between 1 and 3 years. The IRS doesn't make life easy for us!
An option you could do is: have the appraisal done, sell it via a land dealer who specializes in farmland (you'll get less money via an auction company, though it is faster), then move to AZ and rent someplace you like. You have a certain number of months according to the IRS to do the exchange (look up how many months, I forget) so use that time to research the best place to buy. Buy the new property. After waiting a few years and paying normal home rent elsewhere while you get larger rental income from your new property, you can then move into your income producing property and not pay rent anymore and still have rental income from the other parts of your property!
Or, you could just go with what you're feeling now and not want to bother with owning property anymore. If so, you'll have to suck it up and pay capital gains taxes.
Our dear parsident Comrade Rumpdeedump has always used the 1031 exchange rule extensively in his real estate dealings. Trust him to avoid paying taxes!
The value of farmland in our area has gone DOWN for the the past 5 years. According to a talk I attended last year in Marshall MN by a MN Ag economist, the monetary value of farmland will continue to decline for at least another 2. However, it's hard for them to make good predictions with parsident Comrade Rumpdeedump in the driver's seat. He has no understanding of or interest in the ag economy, so has no understanding of how his other actions affect this important sector of our nation's economy. He doesn't understand that as the AG economy goes, so goes the health of small towns in our nation. Since he has no understanding of or interest in small towns, all we ag people can do is hope that things change in Washington. Comrade Rumpdeedump's actions might actually push some of the smarter farmers out of membership in his party.
Again, CONSULT MORE THAN ONE CPA about the 1031 exchange option. You may decide not to do it at all, but at least you'll have learned about it and made an educated decision.
Good luck to you! You're going to miss our dear slice of heaven South Dakota.
Last edited by 601halfdozen0theother; 05-02-2018 at 04:50 AM..
In 2015 I sold part of my farmland in IL to my brother. The whole process took TWO YEARS! You're going to have to start with a real estate appraisal of your specific land done by an appraiser who specializes in farmland before you can do anything else; there's no way around that.
I opted to do a 1031 Exchange with the proceeds, which means that I did not have to pay capital gains taxes on the land sale. My sister was tired of thinking about it all and just stuck the money in her investment funds, so she ended up paying a giant ton of taxes.
I'm going to give you a very basic explanation of a 1031 exchange below, but first want to say: talk with not just 1 but 2 or 3 CPAs in your area of SD about what a 1031 exchange is and how they will handle the filing. The reason I say talk to more than 1 is because I took the advice of the first CPA I talked to and lost money - it took the 2nd CPA to unscrew everything up with the IRS. The reason I say talk to a CPA is because you shouldn't trust a stranger on the internet about anything (even though I'm being as truthful and clear as I can be.)
A 1031 exchange basically allows you to EXCHANGE income producing real property for the same value (dollar for dollar, not acreage for acreage) of other income producing real property without having to pay capital gains taxes.
What I did was use the money from the sale of part of my Illinois farmland to buy more farmland in South Dakota. Because my land in IL was appraised at a higher rate than the land in SD, I got more acreage in SD. I also had $ left to go in with my brother to buy orchard land in his state. So now I have agricultural income in 3 different states. Combined with investment income (stocks and bonds) I feel I have pretty diversified income now for retirement.
But a 1031 exchange doesn't mean you have to buy farm land with the sale of your land in SD, just some kind of income producing property.
So what you COULD do with the proceeds is buy a small apartment building or mobile home complex or duplex in AZ (depends on how much money you get.) Or even a different kind of commercial property, like a bed and breakfast house, or land that has a warehouse or minimall or something on it.
Here's the rub, though - the IRS doesn't make things easy for you. You can't LIVE on the new property you buy with a 1031 exchange for a period of time - I forget how long - somewhere between 1 and 3 years. The IRS doesn't make life easy for us!
An option you could do is: have the appraisal done, sell it via a land dealer who specializes in farmland (you'll get less money via an auction company, though it is faster), then move to AZ and rent someplace you like. You have a certain number of months according to the IRS to do the exchange (look up how many months, I forget) so use that time to research the best place to buy. Buy the new property. After waiting a few years and paying normal home rent elsewhere while you get larger rental income from your new property, you can then move into your income producing property and not pay rent anymore and still have rental income from the other parts of your property!
Or, you could just go with what you're feeling now and not want to bother with owning property anymore. If so, you'll have to suck it up and pay capital gains taxes.
Our dear parsident Comrade Rumpdeedump has always used the 1031 exchange rule extensively in his real estate dealings. Trust him to avoid paying taxes!
The value of farmland in our area has gone DOWN for the the past 5 years. According to a talk I attended last year in Marshall MN by a MN Ag economist, the monetary value of farmland will continue to decline for at least another 2. However, it's hard for them to make good predictions with parsident Comrade Rumpdeedump in the driver's seat. He has no understanding of or interest in the ag economy, so has no understanding of how his other actions affect this important sector of our nation's economy. He doesn't understand that as the AG economy goes, so goes the health of small towns in our nation. Since he has no understanding of or interest in small towns, all we ag people can do is hope that things change in Washington. Comrade Rumpdeedump's actions might actually push some of the smarter farmers out of membership in his party.
Again, CONSULT MORE THAN ONE CPA about the 1031 exchange option. You may decide not to do it at all, but at least you'll have learned about it and made an educated decision.
Good luck to you! You're going to miss our dear slice of heaven South Dakota.
Thanks for your information. Even if I “move “ to AZ I’ll be back to visit SD as it’s where I grew up, live now after retirement, and still have family.
Got to thinking about this, Burk, and I remembered that actually the first thing we had to do was have a new survey drawn. That took FOREVER to accomplish, as all the area surveyors were very busy. If a survey of your land has been done within the past five years (when you were gifted the land?) then you may get away with not having it done, but if not, then you'll have to start with the survey.
Got to thinking about this, Burk, and I remembered that actually the first thing we had to do was have a new survey drawn. That took FOREVER to accomplish, as all the area surveyors were very busy. If a survey of your land has been done within the past five years (when you were gifted the land?) then you may get away with not having it done, but if not, then you'll have to start with the survey.
Getting a survey done is an option, but it is not a requirement. When someone is buying the SW 1/4 of Section 23 (for example), the area of land is what it is. A Buyer may want a survey done, but that can be all part of the negotiation process.
Likewise, an appraisal is not a requirement to sell land, either.
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