You Inherited a Farm, Now What?
You just inherited a farm.
Last week, uncle Jerry passed away unexpectedly and left you his Iowa farmland. He had owned and farmed it for over thirty years, and since you were closest to him in your younger years, he passed down his prized possession to you.
You don’t farm yourself, so you’re not really sure what to do with it. We frequently field questions in our office over the options available to a new inheritor, so we thought we’d address it in a blog post. So the first, and probably most obvious is that you can sell.
If you have no interest in dealing with anything that goes with owning farmland, then selling might be your best option. You most likely will have to pay capital gains tax, but after you pay that, you have a pure profit of what’s left.
Since you don’t farm yourself, but don’t want to let go of the land, you can lease the land out to a neighboring farmer. A lease agreement has to be made and signed upon before September 1st unless worked out otherwise. If there is a current lease on the farmland that you inherited, the current leaser has to receive notice that the contract is not being renewed by September 1st as well.
Hire a Farm Manager
Let’s say that you don’t farm yourself, and don’t necessarily want to lease it out either. Another solution would be to hire a farm manager. A farm manager will make all or as many of the operation decisions as you’d like. From what seeds to plant, to how to make the best fertility plan for your land, they can pretty much do all and everything. You’ll have to pay them, but you’ll also receive the profit from the crop.
Whitaker Marketing Group is able to help facilitate finding a farm manager that best fits your operation.
Let’s say that you find a farmer to farm the land, but instead of charging him rent, you get part of his grain check. This is called share cropping. This can be a little risky if the farmer is having a bad year with weather and grain prices. However, if they’re having a good year, then the deal can be fruitful to both parties.
Half Share Crop, Half Cash Rent
This option is much like the last, however by splitting the share crop and charging rent, you’re lowering your risk for not making as much money. Just like explained above, you’ll get part of the grain check, but you’ll also be guaranteed a rent payment.
You can sell and do a 1031 Exchange for different-like income producing land.
Another selling option is to sell the farmland, but do a 1031 Exchange to avoid the Capital Gains Tax, and purchase a like income producing investment. Let’s say you sell your farmland and buy recreational timber for hunting that you lease out to hunters instead.
As you can see, there a lot of options if you inherited a farm. If you have any questions on what your best option is or are looking for a free valuation of your farmland, give David a call.