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Senior Contributor

BaDEERE- Tax on selling Farmland

BaDeere- below answers your question on what the Federal Tax will be if you sell some of your Farmland. For most of  us in the 35% and lower tax bracket, if we sold land we bought in 1986 for a $1,000/acre, and sold it for $15,000/acre. The per acre tax would be around $2,100/acre I believe. So if we dumped a full section of Iowa farmland that we bought in 1986 for only $640,000 and sold it for the going rate of $15,000/acre, that would be around a $1,344,000 tax bill for Federal Taxes. Makes a guy want to cry doesn't it???? LOL

But you would walk-away with around $8.2 Million on the 640 acres.

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Starting with the year 2013, there will be a new long-term capital gains rate of 20% which applies to taxpayers who fall within the new 39.6% tax bracket. The new capital gains tax rates for 2013 and future years are as follows:

  • 0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets,
  • 15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax brackets, and
  • 20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.

Also beginning in 2013, capital gain income will be subject to an additional 3.8% Medicare tax for taxpayers with income at or above a certain threshold.

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Honored Advisor

Re: BaDEERE- Tax on selling Farmland

Hey RSW, the thing is there`s state capital gains tax too  http://taxfoundation.org/article/high-burden-state-and-federal-capital-gains-taxes  a combined rate of 29%ish of state and fed.  So, if you bought a farm for $3000, sell it for $13,000= $10.000 "profit"(yeah right)...you`ll have to write out $2,900 an acre in taxes. In that case, basically land would have to drop $3,000 a acre or just as well hang on to it and vote Republican Smiley Wink

 

I got 50 acres of corn left and we are looking at 1" of the next couple days after the 3" the other day, it`ll be after the 25th of May, if I`m lucky.  They call for "above average precip through May, oh well, that`s why they pay us the big bucks Smiley Happy

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Senior Contributor

Re: BaDEERE- Tax on selling Farmland

Yes, I was only calculating the Federal Taxes, but the state of Iowa would also want there share of your profit too. Yea, Death and Taxes, 2 things you can never change. Well, maybe we should just hang on to our land, give it to the kids and let them worry about it and we both retire to Florida like all the other retired Iowa farmers do. LOL

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Advisor

Re: BaDEERE- Tax on selling Farmland

Yeah!  20% capital gain rate, only the dumb asses who borrowed money to speculate in it instead of farm it, would be hit the hardest as it should be, since they have to make "cash sales" to repay the bank.

 

But . . . for those who own their land, they can elect the installment sales method and sell it to another farmer or buyer on contract, earn approximately 6% on the contract balance rather than 1% at the bank.   I think that if a person is selling land, they should be reaping the rewards of higher interest rates that go with the contract sale not the bank, in addition the capital gain tax will be paid over the life of the contract, so it is spread over . . . say . . . 20 years instead of recognized in one lump sum.  

 

Plus, in Iowa if your contract buyer defaults, you can get your land back and keep the payments made withing 30 days of default, and if land crashed, you can sue him for the difference between the amount owed at the time of default and the resale price . . . unless . . . he has "non recourse provisions" as part of his contract when he bought the farm.  But hey!  We know land prices are never going to crater, so screw it, let the buyer have his "non recourse provision" like my sellers did me in the 80's, when many got their farms back. 

 

The problem, should not be a problem should it?  I mean everyone knows that all land sales in Iowa is for cash, and no one is borrowing money to buy land, so it kinda looks to me there should be a large number of real estate contract sales being entered into by land owners who want to dump some land, and receive a 6% return on not only the principle they put down to pay cash for the farm, but also the appreciation on the land since they have been holding it.

 

I think the lack of contract sales in Iowa clearly reflects that most land for sale has debt on it and a creditor with a lien on it.   I have been running across cropland for sale in Dakota and Montana where the owners will sell on contract.  Guess they are not as leveraged as the speculators which pervade the Iowa Land Market.  Adios AMigos.  John

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Senior Advisor

Re: BaDEERE- Tax on selling Farmland

Land contracts-   Land appreciates from $10K to $14 k buyer keeps the contract.  Land depreciates from $10K to $6 K the buyer defaults on the contract and the seller now owns a $6K farm rather than a $10K farm.

 

Perhaps if he has a 40% down stroke but that isn't likely to happen.

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Senior Contributor

Re: BaDEERE- Tax on selling Farmland

Ba. Did you get Clipped by that storm this afternoon. We could see it from our front yard heading your way. Last night and today so .5. Add that to the 1.25 a couple of days ago south of Woden. Far from the 4+ on ur Winnebago farms. Day isn't over yet. Big storms sw of us heading this way. Somehow totals seem to even out......MikeM
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Honored Advisor

Re: BaDEERE- Tax on selling Farmland

Yes we got soaked Mike, I don`t know how much but I walked out into a pond at 7pm and there was a foot of water above the level of the pond squirting out of the intake, I`m not looking forward to seeing what it looks like in the morningSmiley SadSmiley Mad   A bad thing is all this soil erorsion on slopes, it just couldn`t be helped, freshly dug soybean stubble is gonna wash, even unworked subble/stalks wash when +3" falls in a short time. Sounds like Mitchell co. Mower co. has flooding, highways shut down.  It`s really strange some neighborhoods around here are only 50% done with corn, those are farmers that get 'wild" normally, it`s just they didn`t have quite big enough window to get done, some fields just simply weren`t fit 1 hour before the 3".  Now here we are the 20th of May, N was put on last fall or 28 sprayed a couple days ago, maybe with chemicals...wet the rest of the month.  It just isn`t gonna be pretty.  On the other site a guy said `83, `93, `03 and now 2013...yrs ending in "3" are cursed, like for a spell in the 1990`s the odd numbered years were challenging.  The thing is, we have alot of money tied up in this crop that`s underwater, 20 yrs ago we knew it`d only be a buck fifty anyway Smiley Happy  Hope all is well or at least better in Woden

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