The benefits of a 1031 Like-Kind Exchange are numerous for farmers and ranchers. In fact, Section 1031 was originally enacted for the benefit of these hard working Americans back in 1921: it freed up capital through tax deferral on the sale of land and livestock. Fast forwarding to today’s competitive environment, 1031 Exchanges continue to support agricultural and ranching industries in much the same way, although the scope of eligible assets has expanded to implements, machinery, vehicles, facilities and more!
A 1031 Like-Kind Exchange, a.k.a. 1031, LKE, Starker or Tax-Deferred Exchange, provides an IRS-authorized opportunity to defer taxes on nearly any business-use or investment asset, even intangibles such as licenses. Here are a few examples of useful farm and ranch Exchanges:
- Current acreage for more advantageous land in terms of types of crops grown or proximity (closer to business operations).
- Commercial property or other real estate investments for additional ranch land.
- Water rights (considered real property in some states) for other income producing real estate. Mineral rights also fall along these lines.
- Farmland for other real estate investment property, even in another state.
- Heavily forested land for land that has already been cleared and worked.
- Livestock such as cows for mixed yearlings, or mixed cattle for steer calves.
1031 Like-Kind Exchange is not a loophole; rather it’s a federally approved cash flow management tool. Using a 1031 Exchange defers tax liability, with an offsetting reduction in future deprecation. By allowing businesses, families and individuals to keep more cash in the present, and therefore reducing borrowing requirements, 1031s aid the growth of the economy. They offer encouragement for farmers and ranchers to move on investments that build their future and help cash-strapped owners avoid downsizing and neglect when replacing equipment, livestock, business-use vehicles and/or property.
When the time comes for a sizable investment or upgrade, it’s a good idea to review options with your CPA before pulling the trigger. If a 1031 Exchange is on the table, reach out to a Qualified Intermediary such as EquipEx: most are happy to provide a no-obligation, no-cost consultation that will help you make sure a 1031 is the right fit.
EquipEx is a dedicated Qualified Intermediary company located in Denver, Colorado. The company provides Section 1031 Like-Kind Exchange information and services to organizations and individuals nationwide. Available on the web at equipex1031.com, by email at , or by phone at 720-266-6095 in the Denver area, 855-313-7080 nationwide.