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Selling a farm is often as emotional a process as it is financial. Your property may have been in your family for generations, making the sale a wrenching, difficult decision. Here are some thoughts to bear in mind that may lessen the strain a bit.
Be sure to work with a qualified tax professional to make certain that every tax ramification of selling the property is taken into account. For further information, have a look at IRS Publication #225 (Farmers Tax Guide, available at irs.gov). If you intend to bequeath part of your farm to your heirs, save them some money by selling assets that you've recently acquired, which would be considered high basis assets because their market value is close to what you paid for them. Then you can pass along low basis assets, which were purchased long ago or have appreciated considerably, on your death and significantly reduce or eliminate any capital gains taxes to be paid. That's because when property is passed down through an estate, the recipients receive a stepped-up basis that equals the fair market value on the date of your death. Your heirs will pay less in taxes and the farm will stay in the family.
With nearly 25 percent of all farmers at or above age 65, many are in the process of selling off their farmland at a selling price high enough to recover the cost of any capital gains taxes. The result is that buyers who can afford the property typically use it for purposes other than farming, such as residential or commercial real estate development.
Keep the land and retain ownership. Lease the property to a fellow farmer, who will work it and pay an agreed-on price for the use. You'll receive revenue without having to do anything but pay the taxes. Of course, rental income fluctuates with market demand for whatever crops are grown.
Have your farm's value appraised by an experienced farm appraiser and contact the local Cooperative Extension Service for assistance in valuing your property or determining how best to sell it. Appraisal should include "highest and best use," which suggests the property could be rezoned from agricultural to more valuable development now or in the future if property is "in the path of growth." Also check plans for freeway expansion in the area. Make certain the appraiser's specialty is farm properties, since residences and other properties are very different in terms of land value, use and other considerations. The operation's overall income potential is an important factor in estimating the farm's value, as is the value of livestock, equipment and machinery, and the age and condition of any outbuildings, such as barns and pens.
Contact neighboring landowners first to see if they're interested in expanding their holdings, or ask them to put the word out. Place classified ads in the local newspaper, as well as in farm publications that have a good circulation where the land is located.
Finance the sale yourself by offering a contract sale option where the buyer makes a down payment and then agrees to pay you a set amount each month or year. There's a risk if the buyer defaults, but the advantage is being able to charge a reasonable interest rate on the loan you've made, as well as spreading out the taxes owed on the sale. Also, title doesn't transfer in a contract of sale until it's paid off, making default less of a problem.
Exchange your farm land for property elsewhere to potentially reduce your tax bill. Research your options.
Hire a real estate agent with prior experience selling farms to broker the property. You'll pay a commission but you will broaden your exposure to prospective buyers. Commissions may even be negotiable but usually run from 2.5 to 3 percent.
Auction your land. While it may yield a price below market value, you can set a reserve price below which you will not agree to sell. In some cases, auctions can result in a purchase price far above what you might have expected, if competition is fierce. Ask auctioneers what time of year is best for selling off farmland. (See <a href="http://www.ehow.com/how_108302_buy-auction.html" target="_top">How to Buy at Auction</a>.)
Value assets such as grain, barns and other improvements separately at the time of sale to establish a basis for depreciation for the new owner. (See Tips.)
Be sure to separate the value of the cropland from that of the personal residence. Keep it out of the equation when calculating the basis for the business property, which is subject to capital gains. (The capital gain on a business property is determined by subtracting the selling price minus the initial purchase price.)
Donate the farm to a nature preserve or nonprofit organization if you can find no takers, wish to preserve the land and prevent it from being developed, and can afford to accept a tax break instead of income. Look into organizations such as the Nature Conservancy (nature.org) or the Trust for Public Lands (tpl.org).