Georgia 1031 Exchange For Farms, Ranch and Land Properties

Mixed-use land (where a portion of the property is a primary residence, and the other qualifies as property being used for business or investment purposes) can still be eligible for a 1031 exchange. If you file your income taxes as a joint return or you have lived in the farmhouse for at least two years, Section 121 of the Internal Revenue Code (IRC) may apply to you. IRC Section 121 segregates the personal residence from the total sales price of the farm and grants a tax exemption on the primary residence portion of up to $250,000 ($500,000 if joint filing) gain.

Even though land is not depreciable, depreciable developments on the land such as certain storage houses, barns, silos or irrigation systems may increase the total tax bill upon sale because depreciation recapture will apply unless 1031 exchange is utilized. Assets such as those listed above may be known as Section 1245 and 1250 property, which could be subject to depreciation recapture. This means that when you sell your land you may have to “recapture” the depreciation.

Previously harvested crops may not be considered “real property” and therefore may not be exchangeable under Section 1031. One solution may be to sell the unharvested crops along with the land to the buyer, assuming appropriate holding periods have applied.

Water rights and Mineral rights may be considered as real estate and/or fee interest in real estate and therefore may qualify as 1031 exchange property. There are specific holding requirements and recognition qualifications to determine if they are real estate for tax purposes and eligible for exchange.

Of course, there are subtleties for every situation, so it is essential that you consult your qualified intermediary and tax advisor if considering a 1031 Exchange.

Can you 1031 Exchange on a Farm, Ranch or Agriculture Land?

IRC §1031 allows for the deferral of capital gains tax if property held for business or investment is exchanged solely for property of “like-kind”. Like-kind does not mean that an investor must exchange a farm for a farm, ranch for a ranch and so on. Both properties must be similar enough to qualify as like-kind.

Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States. Also, improvements that are conveyed without land are not of like kind to land. This means farm or ranch owners can 1031 exchange into another agricultural property, commercial building, apartment building, or any other interest in real estate.

Can you 1031 Exchange into Raw Land?

All forms of land are eligible for a 1031 exchange, even if it’s undeveloped.
Why buy raw land? There are plenty of good reasons to buy raw land. Price is one of them. You can find reasonably priced raw land parcels across the country. This is particularly true in rural, less populated areas. And while financing for a raw land purchase is harder to obtain from your bank, you can often get it through the seller at below-market rates.

Raw land may be an attractive investment and a compliment to your stock portfolio. If you purchase the right parcel it may continue to appreciate.

Does Georgia Recognize 1031 Exchanges?

The basic premise of a Georgia 1031 exchange is the same as it is throughout the country. To accomplish a full tax deferral on the sale of rental property you must follow the IRS Section 1031 Guidelines.

Corcapa 1031 Advisors recommends the following:

• Be in communication with your Corcapa 1031 Advisors representative well ahead of your proposed relinquished property sale closing date so we can begin to research and identify potential replacement property.

• Be sure to select and assign a Qualified Intermediary “QI” or Accommodator to receive the sale proceeds from escrow. Corcapa can recommend QIs for you. Be sure to research the financial backing of QIs before selecting them. Be especially careful to NOT take personal receipt of the funds or your exchange will be invalidated.

• From the day you close your relinquished property, you will have 45 days to identify your replacement property(ies). This identification must be in writing, and can follow one of three possible identification rules:

1. 3-property rule: Up to three properties are identified no matter what their value.
2. 200 percent rule: Any number of properties is identified as long as their combined fair market value (FMV) does not exceed 200% of the FMV of the relinquished properties.
3. 95 percent rule: Any number of properties are identified no matter what the aggregate FMV, provided 95% of the value of the identified properties is acquired.

• The investor must close on the identified replacement property(s) within 180 days from the close date of the relinquished property. This is an additional 135 days from the end of the 45 day period in which to close on your replacement property(ies).

• Additionally, for full tax deferral you must purchase equal or greater purchase price, equal or greater debt and reinvest all cash.

• Please review the IRS publication here for further details: http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031

Are you an Accommodator?

While Corcapa is happy to refer you to accommodators, we cannot provide accommodator/QI services. We specialize in the replacement properties for our clients’ 1031 exchanges.

What is Corcapa? What is DAI Securities, LLC?

Corcapa 1031 Advisors is a Finra www.finra.org registered branch office located in Costa Mesa, CA. Our broker dealer is DAI Securities, LLC. Securities offered through DAI Securities, LLC.

* All information provided on this page is time sensitive and subject to change