Since the values for ranches in Texas can be so large, tax consequences often can become the topic of interest for both the buyer and the seller. There were some tax law changes in recent months regarding 1031 exchanges for ranches, so here are some resources of possible interest to you:
November 2018 IRS website update “Like-kind exchanges now limited to real property”. Here are some of the points from that update:
IR-2018-227, November 19, 2018
WASHINGTON — The Internal Revenue Service today reminded taxpayers that like-kind exchange tax treatment is now generally limited to exchanges of real property. The Tax Cuts and Jobs Act, passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead.
Effective Jan. 1, 2018, exchanges of personal or intangible property such as machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for nonrecognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir or irrigation stock are still eligible.
March 2019 article in Forbes about 1031 exchanges (click here)
March 2019 article from TheStreet.com about 1031 exchanges (click here). Here is a snippet from that article:
Essentially, the steps for a 1031 exchange are:
Sell an investment property;
hand your capital gains to a qualified intermediary;
identify a like-kind property with 45 days;
negotiate with the seller of the like-kind property;
agree on a sales price;
have your intermediary wire the capital gains to the title holder or the title company;
fill out the IRS form.
Instructions for IRS form 8824, used in the 1031 like-kind exchanges. Click this link to see the rules.
From this article (click for the full article) here are some of the benefits to Texas ranch owners about 1031 exchanges:
A misconception held by some taxpayers concerns the types of property that qualify as like-kind. Some mistakenly believe they must exchange their farm or ranch for another farm or ranch. This is simply not true. The definition of like-kind property in real estate exchanges is very broad; qualifying replacement real property can be virtually any real property that will be held by the taxpayer for investment purposes or used in a trade or business. Bare land can be exchanged for an apartment complex, a rental vacation home, office or other commercial property or any other type of real property held for investment. The range of real property which will qualify for tax deferral opens many options for farmers and ranchers to diversify their investments and obtain cash flow without necessarily having to be involved in the management of the acquired replacement property. Since more than one property may be acquired in an exchange, taxpayers can expand their investments from one large parcel of land into multiple smaller properties in the same or different geographic locations.
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