Consult A Wealth Manager For Prudently Investing Your Sale Proceeds From A Farm/Ranch

Over the years you have worked hard to create an asset of your own in the form of a farm or a ranch. So, when it is time to sell the same, you need to act wisely to preserve the equity and make prudent use of your money. From a general viewpoint, ranchers and farmers are industrious, hardworking, and self-reliant. Unfortunately, most of them are not engaged actively in financial planning and have very little experience in investing their earnings outside their ranch or farm.

Consequently, they end up paying a significant amount from their earnings as taxes arising from the sale of their farm or ranch. While dedication and hard work have been able to reap huge benefits for them to date but lack of proper planning with the right advisors prior to sale can turn out to be a costly affair. So, farmers and ranchers should take advice from qualified financial professionals for saving taxes on a farm/ranch sale.

Available tax saving options to the seller

Selling a highly appreciated farm or ranch can generate a large tax bill which can range from 20 percent to over 50 percent of the sale price depending on the cost basis of the property. While there are several tax-saving alternatives while selling a farm or a ranch some of the most popular options include –

 ·         IRC Section 1031: Tax-Deferred Exchange

This section acts as a powerful wealth building and tax saving tool. It gives the taxpayer the benefit of deferring the tax payable from the sale of a property and investing it in like-kind property. To be precise, no profit or loss is to be recognized from the exchange of a property held for the purpose of trade or business or for investment benefits. However, the term “like-kind” in this context covers a broad meaning and includes real estate like apartment complexes, office buildings, farm/ranch, etc. The user of this section needs to follow certain criteria in order to be eligible to reap the benefits of a Tax Deferred Exchange.

·         IRC Section 664: Charitable Remainder Trust

Also referred to as Capital Gains Avoidance Trust, the Charitable Remainder Trust is an alternative to the Tax Deferred Exchange which allows the user to defer or otherwise avoid capital gains tax from the sale of a real-estate. In addition to real estate ax deferment, this section can also be used to benefit from the sale of crops, livestock, equipment, and machinery. Combining IRC Section 1031 Exchange with IRC Section 664 can act as a powerful tax-saving tool while diversifying investment assets and generating lifetime income.

·         IRC Section 121: Principal Exclusion

This section allows an individual to avoid up to $250,000 of the taxable capital gain from the sale of principal residence and up to $500,000 for a married couple filing a joint claim. The tax saving benefit can be maximized by allocating additional acreage with the ranch or farm.

A Final Word of Advice

Not all tax saving options are suitable for all investment purpose. You have saved your earnings over the years to create equity in the form of a farm or ranch. When you are planning to sell it, you must make a wise decision so that your profit is maximized while you get to utilize all the money that you have earned from such a sale. So consult a qualified and experienced wealth manager when for saving taxes on a farm/ranch arising from its sale.