Important Facts To Consider When Selling a Ranch or a Farm in Texas

By Fabi R. Gomes | June 18th, 2019

Planning in advance of the sale of your farm or ranch is critical for preserving your wealth. It’s wise to know the tax implications of the upcoming sale, as several tax rates and treatments can apply to the different types of assets involved in the sale of this kind of property.

1. Capital Gains Tax
Texas is widely known for having no state income tax, and many investors are attracted to the state because of its lack of taxation on income from sales of property. However, landowners still have to pay federal taxes on the gains, under certain circumstances—currently 25% on state and federal combined. Depending on several factors, an exemption from capital gains tax may be applicable if it involves personal residence and you meet other certain requirements.

2. 1031 Exchange
If the home in question is not your primary residence and personal use is limited to 14 overnight stays per year, the home is eligible for a 1031 tax exchange. This eligibility may postpone tax payment until you sell if you don’t find a similar property in the future.

3. Property Appreciation/Depreciation
Selling a highly appreciated or depreciated property can lead to a substantial tax bill. An owner’s best option in this situation is talking to a tax attorney before listing your property to properly analyze your particular circumstances.

4. Allocation of Sales Price
How sales price is allocated to the assets of your ranch will determine the tax you may ultimately pay. When a farm or ranch is purchased or sold, both the buyer and seller must report to the IRS the allocation of sales price.

5. Life Insurance
Important tax implications are associated with the carrying of life insurance. The IRS states that if you have any incidents of ownership in a life insurance policy, the proceeds will be included in your estate for estate tax purposes. Aside from providing basic family income protection, life insurance can be purchased to provide cash for estate taxes and other costs at death. This protection spares your heirs from liquidating assets for those unexpected expenses.

Other tax-saving strategies when buying or selling your Texas farmland are available. For financial advice prior to listing or purchasing your property, consult your tax professional or real estate attorney. Once your legal and financial strategies have been determined, consult with an experienced CBHarper Farm and Ranch agent to guide you through the buying or selling process.

Coldwell Banker D’Ann Harper, REALTORS®  can be reached at (210) 483-7581 or and has been an affiliate of the Coldwell Banker franchise system for over 30 years. 

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