§1031 Exchange Intermediary

A recent survey of farmland real estate brokers shows that the price of Iowa’s best farmland rose by an average of 6.6 percent from March 2008 through August 2008, cooling slightly versus the previous six month period. This survey was conducted by the Iowa Farm and Land Chapter 2 Realtors Land Institute, as it has been done every March and September since 1978. The RLI is composed of real estate brokers who specialize in farm and land sales, farm management, and appraisals. The results were cited in an article in the Sunday Des Moines Register on September 17, 2008.

Troy Louwagie, the survey chairman as well as a real estate coordinator at Hertz Farm Management in Mount Vernon, had this to say about the results of the survey: “You’re seeing less demand for land for housing and commercial developments in the cities and a return to the more normal profile of 80 percent of buyers being existing farmers.” This compares to the same period last year during which approximately 60 percent of buyers being existing farmers.

For those who follow commodity markets, it is obvious that commodity prices have been a big contributing factor to the rising land values. While a plunge in commodity prices could precipitate a corresponding plunge in land values, Randy Hertz of Hertz Farm Management says, “Fortunately, farms today are in a much stronger balance-sheet position than they were 25 years ago” when land values declined by 70 percent. And at this point, there is nothing to indicate that a plunge in commodity prices is imminent or even anywhere on the horizon.

For the survey, the state is divided into nine districts. Only one of those districts had per-acre averages for high-qualify cropland of less than $5,000 in this survey, compared to four districts with an average lower than $5,000 in the survey over the same period a year ago. The averages in two of the districts exceeded $6,000 per acre.

Please consider IOWA EQUITY EXCHANGE as your source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2008 By Ken Tharp, All Rights Reserved. * Iowa Land Price Survey Shows 6.6% Rise in Six Months * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

About a month ago, the US Department of Agriculture published its annual report on the value of agricultural land in the United States. As you might expect, values were up nearly everywhere, but especially in the Midwest.

High prices on commodities such as corn, soybeans and wheat drove prices higher in the Northern Plains region, which encompasses states such as Kansas, the Dakotas, and Nebraska. Average farmland values increased 15.5 percent in that region, the highest increase on a percentage basis in the country.

On a per-acre basis, the most expensive farmland in the US was in Massachusetts - $12,200 per acre on average. Whew! Rhode Island and Connecticut were close behind. On the opposite end of the spectrum, an acre of farmland in New Mexico can be yours for an average of only $630.

According to the report, wheat increased 77 percent during 2007 on the Chicago Board of Trade. Soybeans soared 78 percent and corn rose 17 percent. These jumps are the primary reason for the increased values in farmland.

All of this took place and continues to take place in the face of stagnant or declining values in the broader real estate market. It is an interesting time, to say the least.

Please feel free to ask us any questions on this topic as well as any other exchange-related topics.

Ken Tharp

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2008 By Ken Tharp, All Rights Reserved. * Quick Update on National Farmland Prices *

The primary objective of most Section 1031 exchanges is to move an investment from one property to another without incurring a tax liability. In other words, take your money out of this property and put it into that property and pay no capital gain tax. By following the rules and regulations of Section 1031 properly, an investor can accomplish that without having a capital gain tax bill.

Occasionally someone we work with will ask a question similar to this: “How about if I refinance my property and pull cash out, then do an exchange into another property? Borrowed cash is tax-free, right?” The answer is yes, most of the time. However, if an investor refinances close to the date of a sale and then proceeds into an exchange, the IRS would likely consider the refinance proceeds as cash taken out of the exchange (therefore being taxable) unless there was some fairly clear-cut business reason for the refinance outside of simply wanting tax-free cash.

The same goes for a refinance shortly after the purchase of the replacement property. Absent a definable purpose for the refinance, the IRS would quite possibly consider the refinance proceeds as boot, and again, expect taxes to be paid on that cash.

The essence of the matter is that the property owner should be able to substantiate an economic or business purpose for the refinance separate from merely getting around Section 1031 rules to pull out cash. The more time between the refinance and the sale (in the case of a relinquished property) or the purchase and a refinance (in the case of a replacement property), the better.

As always, it is critical to discuss matters such as this with one’s tax advisor for specific advice for your circumstances and plans. Please feel free to ask us any questions on this topic as well as any other exchange-related topics.

Ken Tharp

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2008 By Ken Tharp, All Rights Reserved. * What about Refinancing Before or After an Exchange? *