Jessica Lambert

Harvest offers landowners a clear look at how a farm performs. Equipment access, drainage, field layout and crop performance are easier to evaluate when combines are moving through the fields and the growing season is still fresh in everyone’s mind. For owners considering selling farmland after harvest, this is a useful time to look beyond the final yield. A farm’s value is shaped by several connected factors, and understanding them can help you make better decisions about timing, pricing and marketing. What Did Harvest Reveal About the Farm? Yield history is valuable, but one season does not tell the farm’s entire story. Weather, crop rotation, fertilizer applications and management decisions can all influence a particular year’s results. Buyers typically look at production over time along with soil productivity, drainage and the percentage of acres that can be farmed. A farm with strong soils may still be affected by wet areas, irregular fields or difficult access. Another property may have average soils but offer efficient field layouts, good drainage and easy access for large equipment. Harvest can help answer practical questions. Could equipment move easily between fields? Were entrances wide enough? Did certain areas stay wet? Were waterways, terraces or tile systems working as intended? These observations help explain how the farm operates, not just how many bushels it produced. Improvements Need Context Drainage tile, terraces, waterways, grain storage, fencing and improved entrances may add value, but buyers need more than a statement that the work was completed. Tile maps, installation dates, contractor invoices and other records help buyers understand the location and extent of an improvement. Even older maps or handwritten records can provide useful information. Not every improvement increases the sale price by the amount spent. Before completing major work strictly to prepare for a sale, talk with a land agent who understands the local market. A project may make the property more appealing, but it should be evaluated against its cost and likely effect on value. The Farm Lease Affects the Sale The current farm lease can influence when the property is listed, when a buyer can take possession and who receives the next year’s income. A buyer will want to understand the lease term, rental amount, payment dates and whether the agreement renews automatically. If the lease is verbal, the rights of the tenant still cannot be ignored. Notice requirements and termination rules vary by state. The lease may also affect the buyer pool. Some investors may prefer a reliable tenant already in place. An operator looking to farm the land personally may need possession by a particular date. Reviewing the lease early allows your LandGuys agent to market the property accurately and avoid promising possession that cannot be delivered. An attorney should address questions involving termination notices or tenant rights. Income Is Part of the Property’s Story Farm rent is often central to a buyer’s financial analysis, but it may not be the property’s only source of income. CRP payments, hunting leases, grain-storage rent, wind or solar agreements and other contracts can contribute to the farm’s overall return. Buyers will evaluate both the income and the obligations connected to it. For example, a conservation contract may provide annual payments while also limiting how certain acres can be used. A long-term energy agreement may generate income but create easements or restrictions that remain with the property. Providing the complete agreement allows buyers to evaluate the opportunity accurately. A payment amount by itself does not tell the whole story. Accurate Acreage Matters Deeded acres, taxable acres and tillable acres are not always the same. A 160-acre property may contain fewer productive acres after accounting for roads, waterways, timber, building sites or other non-tillable areas. Buyers will also want to know whether access is direct from a public road, shared with a neighbor or dependent on an easement. Surveys, FSA maps, deeds and legal descriptions can help clarify these details. Resolving inconsistencies before listing can prevent questions during negotiations, appraisal or title work. Value Is More Than a Price Per Acre Recent sales provide a starting point, but farmland should not be valued by applying one area-wide price to every acre. Two nearby farms can sell for different amounts because of: Soil productivity Drainage Tillable percentage Field layout Access Location Lease income Improvements Buyer competition A knowledgeable LandGuys agent can compare your property with relevant sales and explain why those farms sold for their respective prices. The most useful comparable is not always the closest property. It is the property that most closely matches the soils, income, improvements and overall use of your farm. Timing Requires More Than Watching the Calendar Selling farmland after harvest may provide clean possession and current production information, but that does not automatically make it the right timing for every owner. Existing leases, tax planning, family decisions and plans for the proceeds may influence when and how the farm should be sold. Owners considering a 1031 exchange or dealing with inherited property should involve their CPA and attorney before structuring the transaction. You also do not need to wait until every issue is resolved before speaking with an agent. An early conversation can help identify which records matter, whether improvements are worth completing and what timeline best supports your goals. How a LandGuys Agent Can Help A LandGuys agent understands that farmland buyers are evaluating more than acreage. They want to know how the farm operates, what income it produces and which features support its long-term value. Your agent can help interpret soil and production information, evaluate access and improvements, review comparable sales and organize the property’s story for buyers. They can also coordinate with tenants, appraisers, attorneys and tax professionals as the sale moves forward. Harvest provides an opportunity to see the farm clearly. The next step is understanding what those observations mean in the current land market. If selling farmland after harvest is on your mind, reach out. We will help walk you through the process and evaluate what your farm is worth.

A traditional land sale usually ends with the seller receiving the available proceeds at closing. That may be the simplest option, but it is not the only way to structure a transaction. Some sellers may choose to accept payments over time through an installment sale, sometimes referred to as simply a land contract, contract for deed, or seller-financing agreement. This can provide flexibility and potentially spread some taxable gain across multiple years. It also creates financial and legal risks that should be carefully reviewed. Before agreeing to seller financing for land, sellers should understand how payments, interest, taxes and buyer default may affect the transaction. Cash Sales Versus Seller Financing A cash sale does not always mean the buyer uses personal funds. The buyer may obtain a loan from a bank, but the seller still receives the purchase price at closing. The buyer then makes future payments to the lender. With seller financing, the seller takes on part of the lender’s role. The buyer typically makes a down payment and agrees to pay the remaining balance over time. The seller may receive: Monthly, quarterly or annual payments Interest on the unpaid balance A large final balloon payment A combination of regular payments and a balloon payment Unlike a traditional sale, the seller remains financially connected to the property and the buyer after closing. What Is an Installment Sale? For federal tax purposes, an installment sale generally occurs when the seller receives at least one payment after the tax year in which the sale takes place. For example, if land is sold in October 2026 and the buyer begins making annual payments in 2027, the transaction may qualify for installment reporting. Each principal payment generally includes: A return of the seller’s basis A portion of taxable gain The amount treated as gain is based on the gross profit percentage calculated for the sale. Interest is handled separately and is generally reported as ordinary income. Receiving payments over several years may spread some of the gain over those years. However, calling a transaction an installment sale does not guarantee that all taxes will be postponed. Interest and Payment Schedules A seller-financing agreement should clearly state: The down payment The amount being financed The interest rate When payments are due How long payments will continue Whether the interest rate is fixed or adjustable Whether a balloon payment is required What happens when a payment is late The interest rate must also meet federal requirements. If the rate is too low, tax rules may treat part of the principal as interest. Land payments may be scheduled monthly or annually. For farmland, annual payments may be timed around harvest or rental-income payments. The schedule should work for the buyer’s cash flow while also meeting the seller’s financial needs. Understanding Balloon Payments A balloon payment is a large final payment due before the balance would be paid off through the regular schedule. For example, payments may be calculated over 20 years, but the remaining balance could be due after five years. At that point, the buyer may need to refinance, sell another asset or use personal funds. A balloon payment allows the seller to receive the remaining balance sooner, but it also creates risk. If the buyer cannot obtain financing when the balloon comes due, the payment may be delayed or missed. Credit and Default Risks When a bank finances a transaction, the bank evaluates the buyer’s finances. With seller financing, the seller should complete a similar review. Before accepting the offer, the seller may want to evaluate: Credit history Income and existing debts Tax returns or financial statements Farming, rental or business income Available assets The amount of the down payment The buyer’s intended use of the property A higher price or interest rate does not make an agreement valuable if the buyer cannot make the payments. Default can include more than a missed loan payment. The buyer may also fail to maintain insurance, pay property taxes or care for the property. If that happens, the seller may need to hire an attorney, begin foreclosure or another state-specific legal process, pay outstanding expenses and possibly take the property back. The condition and value of the property may have changed by then. Protecting the Seller Seller financing should be supported by properly prepared legal documents. Depending on the state and transaction, these may include: A promissory note A mortgage or deed of trust A land contract or contract for deed A personal guarantee Insurance and property-tax requirements Restrictions on transferring or further mortgaging the property The agreement should explain what qualifies as default and which remedies are available to the seller. Additional protections may include a meaningful down payment, proof of insurance, regular confirmation that taxes are current and payment collection through an independent servicing company. State laws differ, so an attorney should prepare or review the documents and confirm that the seller’s interest is properly secured. When Tax Deferral May Be Limited An installment sale may spread some gain over several years, but certain income may still need to be reported in the year of sale. Depreciation recapture on qualifying buildings, fencing, drainage systems, equipment or other depreciated assets may be taxable in the year of sale, even if the seller has received little of the purchase price. Other issues that may affect the expected tax result include: A large down payment A buyer assuming or paying certain seller debts Debt that exceeds the seller’s installment-sale basis Selling multiple assets in one transaction Selling to a related person Charging an interest rate below federal requirements Receiving property instead of cash Selling property that does not qualify for installment treatment Installment reporting generally does not apply to a sale at a loss. Sellers may also choose to report the entire gain in the year of sale, but that decision should be reviewed with a CPA. Seller Financing Versus a 1031 Exchange Seller financing and a 1031 exchange are different strategies. A 1031 exchange involves selling qualifying real estate and purchasing other qualifying real estate under strict rules and deadlines. An installment sale involves receiving at least one payment after the tax year of the sale. Combining the two can be complicated. If either strategy is being considered, the seller should involve a CPA, attorney and any qualified intermediary before closing or receiving proceeds. Questions to Ask Before Accepting an Offer Ask your CPA: Does the property qualify for installment reporting? How much gain would be reported in the year of sale? Is there depreciation recapture? How will the interest income be taxed? How will the existing mortgage affect the calculation? Are there federal and state tax considerations? Ask your attorney: Which financing and security documents are needed? What happens if the buyer misses a payment? Who is responsible for taxes, insurance and maintenance? Can the buyer transfer or further mortgage the property? What legal process applies if the buyer defaults? Should an independent company collect the payments? Coordinate the Agreement Early The payment schedule, interest rate, balloon payment and protections for the seller should be established before the purchase agreement is signed. A LandGuy can help communicate the proposed terms and coordinate the transaction. The seller’s attorney and CPA can determine whether the agreement provides adequate protection and fits the seller’s tax and financial goals. Seller financing for land can expand the buyer pool and create a stream of income. It can also leave the seller responsible for collecting payments and dealing with a possible default. Compare the potential benefits with the risks before deciding whether receiving payments over time is the right alternative to a traditional sale. Learn More For additional information, visit: IRS Publication 537: Installment Sales IRS Topic No. 705: Installment Sales IRS Publication 544: Sales and Other Dispositions of Assets IRS Form 6252: Installment Sale Income This article is provided for general educational purposes and is not intended as tax, legal or financial advice. Tax treatment and seller remedies depend on the property, transaction documents, applicable state law and the seller’s individual circumstances. Consult a qualified tax professional and real estate attorney before agreeing to an installment sale or seller-financing arrangement.

Selling investment land can create a sizable capital gain. If you plan to use the proceeds to purchase another property, a Section 1031 like-kind exchange may allow you to postpone paying tax on some or all of that gain. However, a 1031 exchange is not something you can decide to complete after receiving the money from a sale. It must be planned before the property closes, and strict rules and deadlines apply. Understanding the basics of a 1031 exchange for land can help you know which questions to ask before listing or accepting an offer. What Is a 1031 Exchange? A Section 1031 exchange is a way to sell qualifying real estate and reinvest the proceeds into other qualifying real estate while deferring the recognition of capital gain. The word “defer” is important. A 1031 exchange does not automatically eliminate the gain or make the transaction tax-free. Instead, the gain is generally carried forward into the replacement property. Tax may become due when that property is eventually sold without completing another qualifying exchange. A basic exchange works like this: You sell property held for investment or business use. A qualified intermediary holds the sale proceeds. You identify potential replacement property within the required deadline. The intermediary uses the proceeds to purchase the replacement property. You report the exchange to the IRS. Because every transaction is different, a CPA and qualified intermediary should review the plan before the original property closes. Which Properties May Qualify? Current federal rules generally limit 1031 exchanges to real property held for investment or productive use in a trade or business. Examples that may qualify include: Tillable farmland rented to a farmer Recreational land held as an investment Timberland held for investment Rental property Commercial property Undeveloped investment land Farm buildings and other qualifying real property Certain long-term interests in real estate “Like-kind” does not mean the replacement property must look exactly like the property you sold. The term is broader when it applies to real estate. For example, an owner may be able to exchange: Farmland for rental property Timberland for commercial real estate A rental home for undeveloped land Improved property for unimproved land Both properties must meet the IRS requirements, but they do not necessarily need to have the same use, appearance or location within the United States. Personal property such as farm equipment, vehicles and livestock generally does not qualify under the current 1031 rules. The Property Must Be Held for Investment or Business Use The property you sell and the property you acquire must generally be held for investment or productive use in a business. This requirement focuses on why you owned the property and how you used it. For example, farmland leased to a tenant may be held as an investment. A property used in an active farming operation may be held for productive business use. Recreational land may also qualify when it is genuinely held as an investment. Property acquired mainly to resell may not qualify. This can become an issue for developers or others who regularly buy and sell property as inventory. There is no single holding period that automatically proves investment intent in every situation. Your CPA and qualified intermediary can help evaluate the property’s history, use and ownership. Why Personal-Use Property Generally Does Not Qualify A primary residence or land used mainly for personal enjoyment generally does not qualify for a 1031 exchange. Examples may include: Your primary home A personal weekend retreat A hunting property used only by your family A vacation home that is not treated as an investment Land purchased primarily for personal recreation A property can have both personal and investment use, which makes the analysis more complicated. For example, a rural property might include a personal residence, rented farmland and other investment acreage. In that situation, only part of the transaction may qualify. The purchase price and value may need to be divided among the residence, investment land, buildings and other assets. Do not assume that an entire property qualifies simply because it produces some income. Ask a tax professional to review how each portion is used. What Does a Qualified Intermediary Do? A qualified intermediary, often called a QI, is an independent party that helps complete the exchange. The QI generally: Prepares the exchange documents Coordinates with the closing company Receives and holds the sale proceeds Documents the replacement properties identified by the seller Transfers the exchange funds toward the replacement purchase Maintains records of the exchange The seller generally cannot take possession or control of the sale proceeds. If the money is paid directly to the seller or made available for the seller to use, the transaction may be treated as a sale rather than a qualifying exchange. That is why the QI must be selected and the exchange documents must be in place before the original property closes. A LandGuy, attorney or accountant may be able to help you locate qualified intermediary companies, but you should evaluate the intermediary carefully. Ask about experience, fees, security measures, insurance and how exchange funds are protected. The 45-Day Identification Deadline After the original property is transferred, the seller generally has 45 calendar days to identify potential replacement property. The identification must usually be: Made in writing Signed by the seller Delivered to the qualified intermediary or another permitted party Specific enough to clearly identify the property A street address or legal description is commonly used. The 45-day period includes weekends and holidays. It generally cannot be extended simply because the seller has not found a suitable property. IRS rules also limit how many potential replacement properties can be identified unless additional value-based requirements are met. The QI can explain which identification rule fits the exchange. The 180-Day Purchase Deadline The seller must generally receive the replacement property by the earlier of: 180 calendar days after transferring the original property, or The due date of the seller’s federal tax return for the year of the sale, including extensions This is not an additional 180 days after the 45-day identification period. Both clocks begin when the original property is transferred. For example, if the relinquished property closes on June 1: The 45-day identification period begins on June 1. The 180-day replacement period also begins on June 1. The deadlines are strict. Financing delays, appraisal issues, title problems and unsuccessful negotiations do not usually stop the clock. Reinvesting the Proceeds and Replacing Debt Completing an exchange does not automatically mean the entire gain will be deferred. To generally pursue full tax deferral, a seller may need to: Purchase replacement property with an equal or greater value Reinvest all qualifying net exchange proceeds Replace debt paid off in the sale with new debt or additional cash Avoid receiving cash or other non-like-kind property Debt can be confusing because paying off a loan affects the exchange calculation. Suppose the buyer assumes a debt or sale proceeds are used to pay off a mortgage on the original property. That debt relief may be considered part of what the seller received. New debt on the replacement property or additional cash contributed by the seller may offset it. Simply purchasing another property does not guarantee complete deferral. A CPA and QI should review the sale price, closing expenses, loan payoff, expected proceeds and replacement purchase before the seller decides how much must be reinvested. What Happens If the Seller Receives Cash? Cash or non-like-kind property received during an exchange is often informally called “boot.” Receiving boot does not necessarily disqualify the entire exchange. However, the seller may have to recognize taxable gain up to the value of the cash or other non-like-kind property received. Examples may include: Keeping part of the sale proceeds Buying a lower-value replacement property Failing to reinvest all eligible proceeds Receiving personal property as part of the transaction Having more debt paid off than is replaced or offset For example, if a seller completes an otherwise qualifying exchange but keeps $30,000 of the proceeds, some or all of that $30,000 may be taxable, depending on the total gain and other transaction details. This is sometimes called a partial exchange. It may still be useful when a seller wants to defer part of the gain while retaining some cash, but the expected tax should be calculated in advance. Why Planning Must Begin Before Closing The most important time to discuss a 1031 exchange for land is before the property sells. Once the seller receives or controls the proceeds, it may be too late to convert the sale into a qualifying exchange. The closing company also needs instructions so the proceeds are transferred correctly to the qualified intermediary. Early planning gives the seller time to: Speak with a CPA Select a qualified intermediary Review how the property has been used Estimate the potential gain Determine how much must be reinvested Discuss replacement-property financing Begin searching for suitable property Coordinate the sale and purchase timelines Review how the properties are titled and owned It is helpful to start these conversations before listing. At the latest, the exchange team should be in place well before closing. Questions to Ask Your CPA Before moving forward, consider asking your CPA: Does my property qualify for a 1031 exchange? Does any personal use affect its eligibility? What is my adjusted basis? What is my estimated taxable gain? Has depreciation been claimed on any buildings or improvements? How much must I reinvest to pursue full deferral? How will the loan payoff affect the exchange? What happens if I keep part of the proceeds? Will I owe state taxes even if the federal gain is deferred? How should the exchange be reported on my tax return? Could an installment sale or another strategy better fit my goals? Questions to Ask a Qualified Intermediary When comparing qualified intermediaries, ask: How many exchanges have you handled? Do you regularly work with farmland and rural property? What services are included? What are your fees? Where will the exchange funds be held? Are the accounts segregated for each client? What security controls and insurance do you maintain? Who can authorize the movement of funds? How will you help document the identified properties? What happens if the exchange is not completed? What documents do you need before closing? How will you coordinate with my CPA, attorney, broker and closing company? A 1031 Exchange Is a Team Process A 1031 exchange can provide sellers with a way to move from one investment property to another while postponing the recognition of capital gain. It can also add firm deadlines and additional coordination to the transaction. Your LandGuy can help estimate the property’s market value, market the land, coordinate the sale and help identify potential replacement properties. Your CPA determines how the tax rules apply to your situation. The qualified intermediary structures and facilitates the exchange, while your attorney and lender may also play important roles. The sooner everyone is involved, the more time you have to make informed decisions and keep the transaction on schedule. Learn More For additional information, visit: IRS: Like-Kind Exchanges and Real Estate Tax Tips IRS Publication 544: Sales and Other Dispositions of Assets IRS Instructions for Form 8824 IRS: About Form 8824, Like-Kind Exchanges This article is provided for general educational purposes and is not intended as tax, legal or financial advice. Tax treatment depends on the property, its use and the owner’s individual circumstances. Consult a qualified tax professional, attorney, lender and qualified intermediary before making transaction decisions.