If you are in the agriculture business, chances are you have invested in real estate. Whether your business is looking to diversify some agricultural land holdings, or you are selling real estate for other needs, the tax consequences can be quite significant. Thankfully, a little relief is offered through tax-deferred exchanges of real estate.
How does this help? Generally, if real estate is sold and you experience a gain, you must pay taxes on the gain at the time of its sale. However, under the IRC Section 1031 code, you may be able to postpone paying taxes on exchanges of qualifying, like-kind properties. This type of exchange can be beneficial, as it allows you to reinvest the gain as long as it is used to purchase a similar property.
There are a few requirements that the property must meet in order to qualify for this exchange. Both properties must be held for productive use in a trade or business, or for investment. The properties must also fit the “like-kind” description. This means that each is of the same nature, character or class.
Remember, this type of exchange is not tax free. When the replacement property is eventually sold, the original deferred gain, plus any additional gain realized, is subject to taxes. Though we have outlined a few basic requirements, tax-deferred exchanges of real estate can be quite complex. The opportunity to defer taxes on the sale of real estate can be very beneficial to you and your business. If you are contemplating a tax-deferred exchange, we recommend you consult with a tax professional.
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column by STEVEN E. CRISMAN
Bio: Steven Crisman is the managing partner of Cross, Fernandez & Riley, LLP’s (C/F/R) Winter Haven office and leads their Agriculture Practice Group. He primarily serves the agriculture, manufacturing, warehousing, and distribution industries. He has specific experience with citrus growers, cattle ranchers, citrus and other horticultural nurseries, citrus harvesters and other support industries as well as watermelon, blueberry and other growers. In addition, Steve provides comprehensive tax and estate planning, attestation and business succession planning services.
