In order to clarify things in the mind of anyone who is uncertain about it, the farm bill that was pass
ed by Congress does not include the language about like-kind status that those of us in the exchange industry were concerned about. The Senate version of the bill sought to redefine the term “like-kind” as it applies to agricultural ground. The crux of the change was to make land that generated any sort of subsidy from the government for its owner non-like-kind to any other real estate investment. The central objection to that provision, in my opinion, is that the government essentially imposed the subsidies on f
armers over the years and it is not equitable to now make it so those same farmers could not exchange out of their long-term investments into something more manageable in their later years.
While this is good news indeed, investors and real property owners all across the country should remain vigilant with regard to potential changes in Section 1031. The mere idea that Congress took a shot at changing like-kind status as a means to raise additional funding for their other activities is cause for concern. Considering the possibility of chipping away at the provisions of Section 1031 is frightening.
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.
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Copyright © 2008 By Ken Tharp, All Rights Reserved. * The Farm Bill Does Not Alter the Definition of “Like-Kind” in Regards to Section 1031 Exchanges *
I could see why farmers in who were getting up in age would be concerned by a change like this. I'm glad to see they didn't punish our farmers for their years of hard work!
Hi Todd,
Thanks for stopping by. It would have been a terrible thing to inflict on some of these folks. Unfortunately, there really does seem to be a fair number of farmers who have no one to pass their farms on to, or no one who wants to farm it.
- Ken
Ken, I realize that your butter is doing exchanges but do you advise some of your clients that selling may be to their advantage because capital gain taxes are sure to go up under the next administration? Maybe an installment sale or structured sale is their best bet.
Anyway, I'm glas we dodged that bullet this time.
Bill Roberts
Bill - When I see a situation that I believe the client would be better served by doing something other than exchanging, of course I will let them know that. However, I come to this business as an investor. As an investor, it's difficult to find many situations where there's an advantage to selling outright and paying those taxes, even though they may be a "bargain" today compared to what they might be paying in a year or two. Again, as an investor, it makes more sense to me to reinvest all of the sale proceeds into something that creates income and offers growth potential. If there's a need for cash, the exchanger can always put a small mortgage on the property later on and use the income to pay it back.
Installment/structured sales are an option, but they don't avoid the tax liability. Every situation is different, though, and they could apply in some. Thanks for your comments!
Ken
Good info for anyone involved inb 1031's. Thanks!
Trey - Thanks for stopping by!
- Ken