Should I Sell the Inherited Family Farm?
You’ve inherited the family farm. Now becomes the hard part… deciding what you’d like to do with the farmland. Should you sell it? Continue to lease it out? Hire a farm manager? We’ve answered these questions and more below.
Will I have to pay taxes?
One of the nail-biting questions always is, “Will I have to pay taxes on my inherited family farm?”. The easy answer is no. The only way beneficiaries pay a death tax is if the inherited land would exceed 5 million dollars. You also avoid paying an inheritance tax (in Iowa) if you leave the estate to a lineal ascendant or descendant relative.
Partitioning the family farm:
Let’s say the land is split between three siblings. One of the owners would like to sell the family farm, but the other two wish to keep it. To solve the problem, the inheritors can have the farm partitioned. This means that the courts can separate the land into three parcels, and each party can do with the land what they’d like. But, if the courts deem the land is unable to be equally divided, it will order the sale of the land and the proceeds will go to the co-owners.
Terminate a farmland lease:
One of the options many landowners choose to take is to continue to lease the farmland to the current tenant. However, if they’d like to lease the land to a different tenant or sell the land, there are a few laws that need to be adhered to:
To terminate a lease with current tenants, landowners by law have to let the tenant know in writing that they will end the lease by September 1st. The tenant has until March 1st of the next year to farm the land. If the tenant isn’t notified by the September 1st date, other arrangements can be made with but it’s recommended with legal guidance.
Sell the land:
Another option farmland owners have is to sell, which is a great option for those who don’t want to farm or deal with the management side of farming. Doing so could trigger capital gains taxes, however, if the land is sold immediately there is no capital gains tax. When a beneficiary inherits land, the land receives a step-up in basis to its value on the date of death. This means in the event you do have to have to pay the capital gains tax, it is much lower. You can sell the land with an active tenant leasing the land but, this could affect the details of the sale and the current tenant.
Hire a farm manager:
Landowners may choose to hire a farm manager to manage the family farm for them if they want to keep the land, but not farm nor lease it out.
In the end, the beneficiary(s) of the farm have to do what’s right for them and hopefully consider what the parents or original owners would’ve wanted, too.