The Tax-Advantaged 1031 Exchange

Section 1031 of the Internal Revenue Code (IRC) allows you to sell your agricultural land and defer the payment of capital gains taxes that may arise from any appreciation on your property.

By using the proceeds of your property sale to purchase “like-kind” real estate, you potentially can reinvest in property types that may offer greater appreciation, portfolio diversification and potential income. That is one of many reasons 1031 Exchanges are becoming increasingly popular among farmers and ranchers who are considering selling their land.

Like-kind property does not just mean replacing agricultural land with agricultural land, while certainly an option. Examples of like-kind properties which can be reinvested in include:

  • Multifamily apartments
  • Self-storage facilities
  • Healthcare facilities
  • Student housing
  • Office buildings
  • Retail centers
  • Industrial warehouse

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Before You Sell The Farm!

ANY real estate held for productive use in a trade or business or investment purposes is considered like-kind. Therefore, the ability to exchange your agricultural land for other types of real property may provide you the opportunity to diversify your investment portfolio and potentially increase your income.

Important Note: It is important to know that when considering the sale of your agricultural land; equipment, livestock, and crops are not exchangeable under IRC  Section 1031, although water rights and mineral rights may be exchangeable under certain conditions.

1031 Timeline Requirements

To execute a successful 1031 Exchange transaction, there are specific guidelines that must be followed. You will need to identify a replacement property within 45 days of the sale of your relinquished property, with the entire 1031 Exchange timeline being no longer than 180 days from the sale of your relinquished property.


Sell Relinquished Property

DAY 45

Identify Replacement Property

DAY 180

Acquire Replacement Property


Three Basic Steps to Follow

While there are several requirements governing a 1031 Exchange, you will generally follow a simple, three step process:

  1. 1You sell your property, known as the relinquished property, and the proceeds are escrowed with a Qualified intermediary (QI)
  2. 2Your QI, through a written agreement with you, transfers funds for the purchase of your replacement property.
  3. 3You receive your new property.

The Many Potential Benefits

Leveraging a 1031 Exchange transaction if you sell your agricultural land can provide several valuable benefits, including:


Portfolio Diversification


Passive Ownership


Potential Tax Advantages


Maximizing Cash Flow


Potential Capital Appreciation


Inflation Hedge

Deciding to sell your agricultural land might have been a difficult process. However, using a 1031 Exchange to reinvest the proceeds from that sale needn't be.


About "Top tips to consider when selling the farm"

Selling your family farm is big decision. Many farms have been part of a family's history for generations and letting go of the property has sentimental and financial implications. We compiled a checklist of our top tips to help farmers and ranchers, like you, navigate this new territory. It may be possible to defer taxes by reinvesting the proceeds in a like-kind investment.

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Real Estate

Real estate investments have the potential to help generate retirement income and build long-term wealth to pass on to heirs.

Tax Deferral

A Section 1031 exchange can help you transition to another real estate investment while deferring capital gains taxes.

Passive Possibilities

If you’re ready for a less stressful form of real estate ownership, consider a passive strategy.

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