Wednesday, January 31, 2007

I'll bet Realtors love this idea...

Buried in the farm bill proposals from the administration is an interesting wrinkle on 1031 farmland exchanges:
Recommendation In Brief
Eliminate commodity program payments for all newly purchased land benefiting from a
1031 tax exchange.
While many farmers are reporting significant economic hardship, land values have
continued to climb. Average farm real estate value increased over 90 percent from $974
per acre in 1998 to $1,900 per acre in 2006. During that same period, the average value of
cropland increased almost 80 percent to an average $2,390 per acre.
High land values continue to be a barrier for new farmers who are seeking to enter
production agriculture. These high land values are also problematic for small and socially
disadvantaged farmers who are seeking to expand their operations.
A reoccurring theme at USDA Farm Bill Forums centered on how individuals near urban
areas sold their land and moved to more remote areas where they outbid local farmers for
farmland, simply to take advantage of the 1031 tax exchange. For example, Troy, a 26-
year-old college graduate in agribusiness from Utah said, “It has always been my dream
to be able to someday own my own farm. Currently, I am unable to do so due to the giant
barrier of entry which is land values….This is mainly due to speculation of real estate and
1031 exchanges.” Ronald from Minnesota caused a round of applause when he stated
“it's the 1031 tax exchange that's killing the young farmer.” And Len from Wisconsin
added, “The 1031 is just driving our land rents and land prices to where the average
producer, even big producers can't compete.”

[My emphasis]

I'm going to ponder this in my heart of hearts and spout off later. Feel free to jump in first.


Anonymous said...

In my area of Minnesota(Nicollet County)land is selling for about $4000 per acre. Most of the sales are farmer bidding against farmer. I know 1031 people who come to these sales, shake their heads and say I can buy land cheaper and with greater return in a different area. In our area most of the 1031 guys don't actually come out and farm their land. They rent it out to farmers in the area. Maybe they should receive a benefit for renting to a young farmer. I am a 1031 farmer who had to leave our family farm that had been in the family for 88 years. Why should I be penalized after being forced to leave? I was farming before the 1031 and still am farming after the 1031. Steve fron Minnesota

Anonymous said...

Farmers doing 1031s are not farmers but real estate dealers. I know areas of Indiana where farmers are selling around Indy for $20,000 an acre and buying in other 'rural' areas for $5,000 an acre which keeps the local farmers out of the market that otherwise would be about $2500 or less. This is a government subsidy that is killing local farmers and should this be given a decent burial. Another good idea gone bad. Sort of like the elimination of inheiritance tax which the Farm Bureau says helps farmers. But it really helps farmers who become real estate investors by luck. A higher minimum as proposed by the Demos who help real farmers pass their farms to their kids and not just sell them to real estate developers but that is another blog.

Anonymous said...

We are witnessing the affects of a free enterprise, capitalistic economy. With risk comes potential for reward, sometimes for me, sometimes later for my grandkids. The same economy that sometimes rewards me for my risks also rewards others, often in seemingly unfair proportions. However, if that were my 1031 money, I'd need botox to get rid of my smile. I don't feel that allowing the government access to ridiculously large percentages of other people's profits - whatever the source - so that I can have a chance to compete, is the sort of economy in which I want to be successful. Capitalism comes with a price, and sometimes that means we have to sit back and watch. This is a debate that can go on indefinately, but dang it - I hope to succeed someday, maybe even realize a little good fortune along the way - and if I do, I'll have paid my dues. Maybe allow investments other than likekind property, but don't advocate taxing my success away from me. Nor is making 1031 land ineligible for FSA payments reasonable. Such thinking is dependent on the assumption that all non-1031 land is somehow deserving of more favorable treatment becasue it was paid for by my Grandpa, my hogs, or (gasp!) my in-laws. We all know it wasn't paid for by corn and beans. But that's okay because it wasn't urban cash. Agriculture is, of course, a completely captive economy with the exceptions of 1031's. I'm 27 years old, with plenty of hurdles ahead of me, but I shouldn't hate the 1031'ers, while hoping and praying for similiar good fortune myself. Let them enjoy their gravy. I want mine someday.

brian said...

This is the proverbial tangled web that government tinkering leads to. Tinker with the tax code, then tinker with something else because of unintended consequences, etc, etc, ad infinitum. Look, capital gains taxes are not that high, so why do we need the 1031 provision. And if there is some compelling reason for it, then live with it. But it's an issue of tax policy, not farm policy.

Anonymous said...

Right on. FSA will continue to find problems for which they want to be the solution - their salaries are on thin ice. We all want to keep our jobs.