As farmland values continue to climb, capital gains taxes have become a major consideration in farm succession planning. Selling land that’s appreciated over decades can trigger a substantial tax bill if strategies are not in place.
Extension Farm Management Specialist Kelly Wilfert says a new federal budget provision offers relief by allowing farmers to spread out capital gains tax payments over time. The measure lets farmers pay capital gains on farmland in four annual installments instead of all at once.
“For some of our farms that’ve held farmland for a number of years, that could be fairly significant,” Wilfert explains.
Since capital gains are calculated based on the difference between the land’s sale price and the owner’s original tax basis, the bill can be steep, especially for long-held property. Wilfert shares an example from a farmer in the Central Sands region. The farmer’s father bought land there more than 50 years ago for a relatively inexpensive price — up to $300 an acre or less. Today, that same land is worth around $10,000 an acre, Wilfert says. Selling that land would mean paying Uncle Sam up to 20 percent of the difference between the original price and the current value.
“That’s a pretty significant chunk of change,” Wilfert says, noting that the flexibility to pay the tax over four years could make a real difference.
