Tax Free Exchange, what to buy

Discussion in 'Homesteading Questions' started by Jena, May 16, 2005.

  1. Jena

    Jena Well-Known Member

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    As my situation develops it is starting to look like I might (that's a big "might") end up with a chunk of cash from the sale of the farm ground.

    Some of that will have to go to pay debt and I'm going to be stuck for the capital gains on that part, can't be avoided. I also have to "pay" my husband for the house my kids and I will live in. Transfers between spouses are tax-free so I think I won't have to pay taxes on that part, but I have to check for sure.

    I need to do a tax-free exchange on the rest. I would love to have that cash in the bank, but I do not want to pay the IRS tens of thousands of dollars to do it.

    My first inclination is to buy more farm ground. I hesitate because...I'll have a hard time finding anything in the immediate area, prices on farm ground are through the roof right now due to good crop years and I'm still not sure how my reputation will be when this all shakes out. I could be perceived as the hero, or the villian and that will matter alot in how much I pay for something.

    My other thought is to buy residential rentals. The residential market is not very hot over here, so prices are not "the highest in XXX years". I could use the rentals to basically defer my exchange, then when farm prices come down, I can sell the houses and buy my farm ground. Plus I can save that rental income up towards more farm ground.

    I have been a landlord before and understand the perils of this. Bad tenants, destructive tenants, property damage, liability, loss of income all come to mind. Things I would not have to worry about with farm ground. Heck, I can just CRP farm ground and check back in with it in 10 years, or cash rent it out. Low risk.

    My situation will be that I have very little income for a while and the only assets I have will be that house and that money (or whatever I turn it into). If the sale is done, I will also have zero debt as those will be paid right off the bat.

    My primary concern is survival....making sure I have a house for me and my kids, no matter what. My other concerns are making some attempt to acknowledge my age and plan for retirement. I am 41 and as of now, I have zero retirement funds or pensions. I need to think of that, but I'm also young enough that some risks can be taken. I still want to build empires only this time it will be MY empire so no lying man can make me lose it.

    The property should be up for sale this week and they talk like it will sell fast. If I'm going to do the tax free exchange, I got to get my ducks in a row now. I have so much going on, that I don't have as much faith in my decision making abilities as I usually do. I'm open to any suggestions, advice, insights, etc. regarding what to do.

    I am going to see a CPA tomorrow to go over all the tax implications of this mess and get his advice as well. And since I can't seem to get away from a lawyer for more than a week at a time, they are in on it too.

    Thanks
    Jena
     
  2. agmantoo

    agmantoo agmantoo Supporter

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    1031 are my favorite numbers. Paying the 15% on capital gains is not all that bad either. You could invest in some blue chip stocks that pay a decent dividend . However, I think that we have in common the need to own real property. You could buy some acreage and then put it in some crp program that would pay you for 10 years or so. Since you do not have a 401, I suggest you consider planting trees in a crp program. That way you could get forestry use on the land and possible deferred property taxes, CRP payments and at the same time be growing a sizeable tree harvest in the future for retirement while having appreciation on the land simoultaneously. Remember, you will only have 45 days to identify the 1031 purchase and that the purchase must close in 6 months with no extensions. Additionally, you can not take possesion of the income from the upcoming sales. May good luck be with you.
     

  3. Mel-

    Mel- Well-Known Member

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    jena,

    could you pm me a link to your farm that is for sale? (or post somewhere here also if you want). I know someone who is interested in farm ground and they wanted me to get the link for them. thanks.
     
  4. 3girls

    3girls Well-Known Member

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    Jena, I am so sorry for your troubles. I hope it will be over and settled soon.

    I would not count on the price of land to go down. It very seldom does. I will always advise getting as much land as possible. In your case, I would so advise even more strongly. You have the experience to grow for food and market and could use the land for other things also. Even 5 acres would be useful to you. Besides, I think you have to trade "like for like". Also, if you pay one cent more than your gain for a place to live in, wouldn't that defer the capital gain?

    You have been successful with the meat, have cleared many of the hurdles needed for that endeavor, have generated some markets, with the potential for more--I think you could make that a successful business.

    Know that my prayers and good wishes are for you and your children.

    I don't know what a CRP is, but I agree with Agmantoo. Black walnut, orchard crop, even (shudder) poplar for the pulp trade could be good investments. I am an old fart now, and am still physically able to do a small nursery in our back yard. I have also grown for farmer's markets. With your energy and go-to-it-iveness, you'll make a success with whatever you try.
     
  5. Maura

    Maura Well-Known Member Supporter

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    Have you looked into small scale farming? There are books written on earning a living on small acreage. Chicken farming works right into it. When you don't have big acreage, you don't need big equipment (and the big debt that goes with it). With your tenacity and strength, you will do great things with your ten acres. I really don't think you need more acreage, maybe another five or ten acre field if one comes along. If you can change your mind set to a small scale, you will find the opportunity. :)
     
  6. Maura

    Maura Well-Known Member Supporter

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    You mentioned retirement. I'm ten years older than you and I'm looking at 65 a bit sooner. Right now, you still have kids in school. This is where you are at and they take a front seat to retirement. You also have a house and ten acres--= an asset. Are you going to benefit more from putting away money into a retirement account, or from buying a new refrigerator, new roof, etc? Take care of those things first.

    If/when you do put money into an account, make sure you've already paid the income taxes, and that you can take the money out if you need it. I'm emptying my Roth account for a business venture. If all goes well, this money is going to make me much more money than sitting in an account. Right now, think about retirement, get all the info you can, so you can make smart decisions when you are in a better financial position. 41 is still young. And remember, you will have a business to sell when you retire, creating a nice nestegg for you.
     
  7. JanO

    JanO Well-Known Member Supporter

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    Jena I don't know enough about your situation to venture to guess on any of it. The tax codes on real estate profits were changed in the 90's though. Under the new regulations the IRS can't ding you on capital gains if your profit margine is under $250,000. as a single person, and $500,000. as a married couple. Of course you would have had to live in the property 2 out of 5 years to qualify, so in essence you can move every 2 years and the IRS can care less...making a profit each time. (I've met quite a few people who have utilized this since it's gone into effect.) Since you have so much on your plate that is connected to whatever profit is made on the sale, you really need to discuss this with your CPA, or some other tax consultant. Now remember though, different states have their own regs that you will need to be concerned with, but you tax person/CPA can advise you accordingly. My hubby and I are currently selling our home in CA. We qualify for the IRS regs, but the state of CA is going to have a field day with us.

    Rentals on the other hand are considered investments, and when you sell them you will get hit hard on taxes.