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