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American Land Seller Podcast
Welcome to The American Land Seller, the podcast dedicated to landowners, buyers, and investors seeking expert insights into the evolving land market. Hosted by Koby Rickertsen, an Accredited Land Consultant and Multi-State Land Broker with High Point Land Company, this show dives deep into market trends, investment strategies, and real-world experiences in farm, ranch, and recreational land sales.
Each episode features industry professionals, seasoned investors, and landowners sharing their expertise on topics such as:
✅ Land market trends and valuation strategies
✅ 1031 exchanges and tax implications
✅ Seller financing and creative deal structures
✅ Conservation easements and government programs
✅ Navigating legal and zoning challenges
✅ Building generational wealth through land ownership
Whether you're a first-time land buyer, a seasoned investor, or a landowner looking to sell, The American Land Seller provides the knowledge and tools you need to succeed in today’s competitive land market.
American Land Seller Podcast
Episode 32 - Tax-Smart Land Deals with CPA & Land Pro Troy Stafford
In this episode of The American Land Seller Podcast, we sit down with Troy Stafford, CPA and Land Specialist with High Point Land Company, to unpack the financial side of land transactions—specifically 1031 exchanges, capital gains, and common tax pitfalls. With a background that blends boots-on-the-ground ag experience and high-level financial leadership, Troy brings clarity to one of the most misunderstood areas of land sales.
We break down the basics of how 1031 exchanges work, what types of land qualify, timing requirements, and when this strategy might not be the right fit. Plus, we dive into common misunderstandings in row crop sales, and what both agents and landowners need to consider before listing or buying.
Whether you're a landowner, investor, or real estate professional, this episode offers practical, real-world guidance to help you make smarter, more informed decisions when it comes to rural property and tax strategy.
📞 Contact Troy Stafford
High Point Land Company
📧 Email: troy@highpointlandcompany.com
📞 Phone: (507) 259-3047
🌐 Website: https://www.highpointlandcompany.com
Today on the American Land Seller, we have a must-listen-to conversation for land professionals, rural property owners and anyone navigating the world of land sales. We're diving into something that comes up often but isn't often well understood the 1031 exchanges and tax smart strategies in land deals, whether you're selling inherited ground, looking to defer capital gains or trying to help a client reinvest into more land this episode is packed with insight you can use right now.
Speaker 1:I'm joined by Troy Stafford from High Point Land Company, a guy who brings both ag roots and financial expertise to the table. Troy grew up working on dairy farms in Dodge County, minnesota, and has spent his entire life in the community. After seven years in public accounting, he went on to serve as CFO and controller roles in private industry, including over a decade with a producer-owned farm cooperative. He holds an MBA and active CPA license, as well as a real estate license and a deep understanding of how tax strategy plays out in real world land transactions. On top of that, Troy gives back as a volunteer firefighter, first responder and EDA commissioner for both Dodge County and the city of Manorville.
Speaker 1:In this episode, we break down how 1031 exchanges actually work, what qualifies, what doesn't and the common traps that can cost landowners big money. Oh, and we also talked through some common misunderstandings in row crop sales that can trip up even the experienced sellers and agents. Whether you're a landowner, investor or agent trying to better serve your clients, you'll walk away from this episode with a stronger handle on the financial side of land. This episode is packed with insight and real-life experience. You won't want to miss it.
Speaker 3:Welcome to the American Land Seller Podcast with your host, coby Rickardson. Coby is an accredited land consultant and multi-state land broker with High Point Land Company. Join us each week as we explore all things land. We bring you fresh insights and expert guests on sales, marketing, regulations, economics and so much more. Visit wwwamericanlandsellercom and find us on one of your favorite podcast platforms.
Speaker 4:Okay, Kobe and our special guests, let's get started.
Speaker 1:Toby and our special guests. Let's get started. Welcome back to the American Land Seller Podcast. Exciting day today we have Troy Stafford from High Point Land Company. Troy, how are you today, doing wonderful, and yourself, oh, doing great man. How's things in Minnesota?
Speaker 2:It's very tepid here. People are getting excited. It's getting nice out. People are getting anxious to get out and work some ground as soon as this frost leaves.
Speaker 1:That is awesome. That is very good. You seem to be killing it lately, Troy Like just got all kinds of stuff for sale and getting stuff under contract and must be a great part of the country to be working in right now.
Speaker 2:Yeah, it's really exciting times up here. I've seen a number of exchange buyers come my way by virtue of my background and my CPA license. People trust that, so it works out well and sold a number of properties and have quite a plethora of listings right now for the take-in.
Speaker 1:Yeah, I was just going through and looking at that that is amazing. So congratulations to you on all your success. So I wanted to talk just start out by you and I both deal quite a bit in row crop sales farmland. I wanted to talk just a little bit about. You kind of have some thoughts on some misconceptions there are in row crop and marketing and stuff like that, you know if you can just get into a little bit of that for me, I'd really appreciate it.
Speaker 2:Sure, I guess the biggest misconception we run across, especially with estates or absentee landowners, is that well, I can't sell my row crop land because it's under contract and so-and-so is going to run it for the upcoming year and until that lease is done I really can't sell the land. My hands are tied, and that's probably the biggest misnomer or misconception we run across. At least in the state of Minnesota it's almost always. The lease is transferred and the new owner the land assumes the rights and responsibilities of said lease. Those payments are trued up at closing and really regardless of how the payment structure is for the lease payments, that can all be shored up in a simple purchase agreement and subsequent closing. So that's really a misconception that most people believe in. But in reality it's really not a hurdle or obstacle whatsoever with selling row crop land.
Speaker 1:Right and I think that's kind of true in most of the states that I am in too you can transfer that lease to the new buyer without any real problems that I know of. So that's a great point that you make there.
Speaker 2:Yeah, and then, generally speaking, the rents are prorated based on days of ownership. So I mean that can all be negotiated well as well. If the sellers want to retain the rents, that's certainly fine too, as long as it slows up front.
Speaker 1:Yeah, I've seen like you pay all the taxes, you get all the rent type of stuff too. So, yeah, there's tons of different ways to do it, but that's a great point that I think a lot of people even if you're in a multi-year lease, if somebody is willing to take that on. And I've even seen farmers that have bought, you know, two three-year leases just so they can have the land at the end of it and take it on the rent.
Speaker 2:So excellent point, so no, so excellent point.
Speaker 1:So you know when you're, when you're dealing with row crop sales and Nebraska, I think we're probably more irrigated here. That's where the higher dollar stuff is. I'm not sure Like in.
Speaker 2:Minnesota.
Speaker 1:I think you guys are still in where it's a lot of dry land. What? What kind of properties are you guys just basically seeing change hands most of the time? What kind of properties?
Speaker 2:are you guys just basically seeing change hands most of the time Down in my trade territories, which are basically southeastern Minnesota, it's mostly row crop land. There's not a lot of mixed-use land. We're in some very fertile soils so they don't have any wasteland per se. I mean there is some right away. There's some waterways to prevent erosion but for the most part everything I sell is probably 95% tillable. So it's pretty consistent and it's very flat, black and square in this area. So very high CPIs, consistently in the mid-90s.
Speaker 1:Nice. Well, one of the things I think is kind of interesting. I think people are going to find interesting is that you are a licensed CPA.
Speaker 2:Correct, that is correct. I have been since 1992.
Speaker 1:How does that help you with your land sales business? Because you're not doing both right. You're just a full-time land broker. You're not doing CPA stuff still.
Speaker 2:Part of my land transactions. There's an inherent knowledge base that I can add value to a given transaction. But I'm not actively in public accounting. But I do keep the license active so I can guide people as it relates to tax planning and or tax consequences of selling and best ways to structure sales so they mitigate the amount of tax liability they're exposed to.
Speaker 1:Yeah. So kind of like a lot of us, you've got a lot of in your history. You've got a ton of experience that helps you with helps your clients, like from the time working on the farm all the way through working with co-ops and farmers and stuff like tie that into how that makes you one of the top land guys in Minnesota right now.
Speaker 2:Well, I have a sincere appreciation for all that growers and producers go through, all through college and high school. I did achieve that appreciation by working on two respective dairy farms and you know it's a lot of work that goes into maintaining cattle, maintaining crops and the like. So and then, like I said, with my tenure in the co-op world, I was CFO controller, so I had an even greater appreciation for what they endure and you know my goal at the end of the day is to help them, you know, add value in the transaction and bring the most to the parties that I represent.
Speaker 2:So, being a CPA, there's an inherent level of trust. Just like you know, I always say you trust three people your mom, your attorney and your accountant. So you know that does give me a competitive advantage because I do know quite a bit more about exchanges and help the number of exchange buyers and or sellers make sure they're compliant with the stringent requirements.
Speaker 1:Well, and I think you've been a huge asset to other agents at High Point too with being able to help them navigate through, answer questions for their client, maybe even get them in touch with a good CPA in the area, or at least let us know what we're looking for when we're looking for one. So that's got to be a huge advantage as well, wouldn't you say?
Speaker 2:Yeah, and that's what's great about being with High Point. We have so many agents that are so diverse on their knowledge base we can pretty much lean on each other for any one particular topic and we have experts you know, multiple experts in the same topic so we can bounce ideas off and we have a conference call every week just to run scenarios by various agents and that adds value to all of our clients as a whole.
Speaker 1:Yeah, no, that's absolutely true. That's been my experience since joining High.
Speaker 1:Point has been just like. There's just a ton of talent both on the field and on the bench any given day, so a lot to draw on as far as being an agent. Even in Nebraska, I draw on you guys that are in other parts of the country for lots of knowledge. So let's talk just a little bit about 1031 exchanges, if you don't mind. When does it make sense for someone to start thinking about reaching out to professionals if they're going to want to maybe do a like-kind exchange, and then what kind of does that process look like?
Speaker 2:And then what kind of does that process look like? Well, if you're contemplating an exchange, the sooner you initiate a search and you also start reaching out to professionals whether it be tax accountants, attorneys, experienced land agents that have 1031 exchange experience the better off you're going to be, Because ideally, you want to start searching before you list your property and or get it under contract, because there is a very short time frame from the time you close on the property you're relinquishing to the target property and that's imperative that you stay within those strict requirements or you may not be able to exchange your property to exchange your property.
Speaker 1:Yeah, and I think that's the big thing is like following the rules. It's extremely complex. What are your thoughts on like your standard title company versus hiring like a 1031 exchange professionals? You know, does it just kind of find out who knows what they're doing or, from experience, that you know who to guide those guys to?
Speaker 2:Well, the unique part about a deferred tax exchange is you do have to have a qualified intermediary and it has to be independent of the attorney representing you. So legally it has to be two distinct entities, even though some companies have two different entities that can represent you. But that's important because you can never have access to or control the money because that automatically precludes a deferred tax exchange. You cannot have access to said funds until actually never, because it goes into the target property. If you do a partial exchange, then at the time that the last exchange or the target property is. If you do a partial exchange, then at the time that the last exchange or the target property is purchased, then the excess or the balance can be remitted to you. But it's important that the onset, when you're contemplating an exchange, two to three months before you're even going to go down that road, you talk to professionals and seek out resources for competent exchange companies, because a lot of times you're talking hundreds of thousands of dollars and millions of dollars and you want somebody.
Speaker 2:You're going to trust and who's going to be there at the end of the day, who's going to hold that money and be a good steward or fiduciary of the funds?
Speaker 1:Yeah, and there's a lot, there's several companies out there that that's what they do professionally is they just do, they're just the qualified out there. That that's what they do professionally is they just do. They're just the qualified intermediary and nothing else. And so it's just a matter of, as an agent, probably interviewing those guys or just knowing who, who you can trust, because you've been doing it so long, probably, correct yeah, we can certainly give you a list.
Speaker 2:You can vet them out yourselves, or we can give you recommendations on who we've used in the past and have great experience with.
Speaker 1:And you know, if we give you a recommendation, chances are they're pretty rock solid sure, and so, like building your team for a, for a land exchange, like to a 1031 exchange, we want to have a qualified intermediary, intermediary, we want to have that title company. Um, that's going to be I, you know, I don't know what you guys call them in Minnesota, but then Nebraska, we call them title, that's who does all our title work? And then you know, you kind of say that we also need to have a CPA involved.
Speaker 2:Is that correct? Yeah, you should always have your tax accountant involved. They want to do some upfront tax planning to strategize and minimize your tax liability. I mean, if you're doing a deferred tax exchange and really there is no tax consequences, but it doesn't hurt to have somebody that's in your corner that's directing you to make sure you're compliant with the exchange requirements.
Speaker 1:Yeah, that's. I mean, that's extremely smart. And again, you're talking about this big of purchases or sales. It's really important to have those professionals that kind of can guide you along the way. If you don't mind, troy, let's take a quick break and we will be right back.
Speaker 1:The American Land Seller Podcast is brought to you in part by LandHubcom podcast is brought to you in part by landhubcom. Join us today and experience the expertise of Landhub's land marketing professionals, whether you're buying or selling. Let us show you the way in the ever-evolving world of land transactions. Visit landhubcom and discover what the future of land marketing looks like. Landhubcom where your land journey begins. All right, we're back here with Troy Stafford from High Point Land Company. Troy, we were talking during the break about, you know, like it kind of you would think that, because there's no structures on row crop land or pasture around or something like that, that it would be a pretty simple transaction for agents to take on. But that's really not true, is it? I mean, there's a lot more to it than just what people see on the top of the land.
Speaker 2:Yeah, there's a number of nuances or considerations as it comes to row crop land. You know, fertility is probably first and foremost. The CPI, or the fertility of the soil has a big impact on the value. Any tiling, any encumbrances, any easements. There's a number of nuances that are special to land that most agents don't appreciate unless they're in it day in and day out. So that's why it's imperative to pair with a, you know, specialized land agent to get the most value for the property if you're considering either buying or selling land.
Speaker 1:Yeah, and that's, you know, in the realtor world. I mean, that's basically one of the bylaws of you know the laws is Article 11, is you don't? Don't take on projects you don't know anything about, essentially, is what I? I would say that's, uh, so, but even in this, like the specialty of, of row crop, or even like, um, you know, any sort of a vacant land is, it's just that misconception that people can, you, you know, anybody can do it, because there's, there's, you know, there's really nothing to it.
Speaker 2:Yeah, I mean from a legal standpoint. At least in Minnesota any licensed agent can sell any type of property. Should they? Probably not, because are they going to add value to the family and do what's right by the family and get the most at the end of the day and look out for their best interest? Probably not, even though legally they can.
Speaker 4:Yeah that's definitely true.
Speaker 1:What other kind of misconceptions are there that you can think of Troy for selling farmland, or selling any kind of land for that matter?
Speaker 2:One misconception there is around here is well, grandma's going into a nursing home, so we really got to sell the row crop land to pay for a nursing home. And to be quite honest, if you have any sort of land mass, it's more than likely the rents are going to be enough to offset that. But in the event that there are not excess funds, the county or the nursing home will, at the end of the day, put a lien on the farm, which is not the end of the world. That in and of itself is not a reason to sell. That being said, that lien is taken care of just like any other judgment or a liability or a loan would be at closing. So there's really no detrimental impact if there were a lien placed on by a nursing home.
Speaker 2:So I wouldn't get too excited about that. It may benefit to hold the land till grandma passes. In the event, that stepped up basis is a consideration because if you sell now to avoid the you know lien or the judgment, you may end up with a tax liability you didn't expect and have less money at the end of the day.
Speaker 1:Yeah, and like to that point. You know there's a lot of rules in place to say if you transfer that property. So if I grandma gives it to a grandson or to their kids, that there's got to be timing and all that stuff involved in that too, you can't just give it away, Correct?
Speaker 2:Yeah, I mean you can or seven year, look back where they dissect that transaction to make sure it was fair and wasn't doing it to avoid any, you know, liens. The other thing to consider is if it is gifted. It's my understanding that it is a carryover basis, so there's no such thing as a stepped up basis for a gift of property, so that may not be the best tax strategy. So it's always best to consult an experienced lawyer and or land agent when it comes to transactions before you contemplate doing something significant such as that.
Speaker 1:Well, I think that's big news for people too, because, you know, I think there's a lot of people that that's the first thing they go to right, we've got to liquidate everything so we can take care of grandma. You know, and, and you know, that's great information that you're given and like, maybe the first step should be let's go find an attorney and see what the best route is to take care of them.
Speaker 2:Yeah, it's kind of I equate it to you know, winning the lottery. Slow down before you go. Cash in the ticket, let's talk about it. Get aligned with the right people and then go in there with an educated approach.
Speaker 1:Yeah, that's solid advice. Before the break we were talking about 1031 exchanges. I kind of got this question when wouldn't you advise somebody to do a 1031 exchange? Is there any time where you think maybe I'd advise them differently Is?
Speaker 2:there any time where you think maybe I'd advise them differently. If somebody has a significant enough basis or they can structure a sale in a way that mitigates their taxes, there may be a reason not to do an exchange. So if you're not looking at a significant gain and you're trying to save maybe $10,000, $20,000 and it's going to cost you $4,000 or $5,000 in attorney's fees, it probably wouldn't be warranted. And that's where it's best to align with somebody, get some advice and they'll make recommendations and ultimately it's your decision. But at least you can make an informed decision as opposed to deciding in a vacuum.
Speaker 1:Yeah, that's extremely smart is to look at every look at what your options are and see what. What is the best thing for each individual client?
Speaker 2:And I think that's something that you know that there's.
Speaker 1:One of the reasons that drew me to Highpoint was because that's just. You see that all the way across the board it's not just about let's, let's sell the land. It's really about sitting at that table and figuring out what is best for the client, even if it's not what's best for maybe that agent sitting there. And it's a tribute to the agents at High Point. I think that they do take that time, correct.
Speaker 2:Yeah, I mean, all the agents at High Point are going to do what's best for the client, regardless of if it's what's best for them. And you know there's other ways to structure sales you can do, you know, basically deferred sales where you do a contract for deed and thereby you, you know, kick the can down the road with the tax liability because it's based on a pro rata portion of the principal you receive in future years. So that does reduce your tax liability, especially if there's an eminent need for the money or if there's an eminent need for the money now.
Speaker 2:There's a number of ways to structure the payments such that you can mitigate your tax liability. At the end of the day, nobody wants to pay more than their fair share of taxes or what they owe.
Speaker 1:Right and to your point, there's tons of ways to protect the land too, you know, like trusts and all kinds of stuff. So again it goes back to finding that professional and most of the time the professional and agents that I know most of them can get you in touch with the right folks. What's some common mistakes people make when they're getting ready, like for a 1031 exchange? What's some common misunderstandings or mistakes you've seen that people make that you've kind of stepped in late and tried to help salvage.
Speaker 2:Probably the one I see more often than not is just not being proactive enough, not searching in advance to their sale or not proactively, like I said, looking for property or being under the gun. Hey, I got this exchange I closed a week ago. Well, that only leaves you about 30 some days to find another replacement property and not partnering up with the right people. I've seen people do 1031 exchanges that didn't have the proper language included in the purchase agreement because that could preclude it or that could make that non-deferred tax exchange and it could ultimately be a taxable transaction, when all along you thought you were aligning to do a deferred tax exchange and they didn't get the right advice up front. So, like you said before, it's imperative to align with people who A have experience, b know the rules and, c are looking out for your best interest.
Speaker 1:Right, and I have actually seen that in the past where it's come back where they thought they executed an exchange and it ended up being a taxable event because of a misstep, like we talked about that earlier. That money cannot touch you. You have to have a qualified intermediary to handle the funds because you can't touch it. It has to go from one person to the person selling the new land you're's selling, the new land you're buying or the new property you're buying, and so there's a lot of moving parts which goes back to make sure you're working with the professional right. I think we've hammered that out, correct? We talked a little bit about you know, like grandma, having to go to the nursing home. Tell me just what is the difference between selling inherited land versus land you've owned for a long time?
Speaker 2:Well, regardless if you inherit property, you buy the property. It's imperative that you first understand your basis. Your basis is quote unquote what you paid for the land and your basis would include any. Is quote unquote what you paid for the land and your basis would include any improvements made to the property. And then sometimes, in the case of it coming through an estate, your basis may be a stepped up basis and that is essentially what was the value of the property at the day you inherited, ie the decedent passed. So in theory, if it's properly set up, you could get a stepped up basis if it comes either through a traditional estate or through a trust agreement, as long as it is a revocable trust.
Speaker 2:It's my understanding that non-revocable trusts do not get a stepped up basis, but revocable trusts get a stepped up basis. So what that entails is, as the date of death of the decedent, your basis is the value of that land and the IRS states that it does need to be a qualified independent appraiser that determines that value. It cannot be a broker's opinion, it cannot be a broker's listing amount. It's basically you need to have that appraisal to establish your basis and it doesn't mean that you need to do it immediately because you can do a retrospective appraisal and that's still as good as an appraisal done that day.
Speaker 2:Granted, it's easier to do an appraisal real time as opposed to retrospectively, but it's important to understand because that, at the end of the day, is your basis retrospectively. But it's important to understand because that, at the end of the day, is your basis and that's what you compare to the sales price to determine your capital gains or losses for said property. The other important part is to differentiate between capital gains in their short term, which are taxed at your ordinary income rate, and then there's long term, which means you held the property for one year or more, and then those are taxed at a much more favorable rate, at least at the federal level. Each state is different as far as applicability for tax rates, but the federal tax rates are much lower for assets held longer than a year.
Speaker 1:Yeah, that's very good information. If you don't mind mind, let's take a break, and uh, we will be right back land isn't just dirt.
Speaker 4:It's where memories are made, families are raised and livelihoods are built. But when it comes time to sell or buy, the weight of the decision is heavy. Where do you even start? Who can you trust to guide you? For too long, land transactions have been treated like a simple exchange Numbers on a paper, a signature on a line. But it's more than that. At High Point Land Company, we don't just list land, we walk it. We learn its story and we find the right buyer who understands its worth. You are not just another deal. You are the steward of something bigger and we're here to help you navigate every step deal. You are the steward of something bigger and we're here to help you navigate every step of the way. When it's time to sell, when it's time to buy. We're here because land is more than just land. It's your legacy.
Speaker 1:All right, we're back here with Troy Stafford from High Point Land Company. What a great company, Troy, you know I got to say joined the last year it's been. I still am looking forward to learning everybody, like meeting everybody and getting to know them more, just because the way we're spread out it's really tough. So we've got that training coming up in May and I'm super looking forward to just getting to know people a little bit better.
Speaker 1:But what's your? You've been with them for quite a while. What's your experience? You've got all good, fuzzy things to say about them. No bad right.
Speaker 2:Yeah, it's really a great place to work. I wish I would have found it or considered it some 20 years ago, when I was earlier in my career, but, like I said earlier in our podcast, you know, it is a very comprehensive growth orientated firm that allows us to draw on a variety of expertises across across all of our specialties and we all bring value to the table, but collectively we add the most value to each and every one of our clients.
Speaker 1:Right, and it's just. It's great to just have. You can call anybody and they will take the time. That was one thing I found, even just in her. Hey, my name is Kobe, I've got a problem or I got a question. Somebody said you know about this. So, yeah, it's just been a great experience for me and, after having kind of a rough year or so trying to find myself and make things, figure things out, so it's been a great deal myself and make things figure things out, so it's been a great deal. So I always think when we're going through some of this stuff, that we come at it from such a high level that a lot of times we lose people. So, if you don't mind, let's go back to like just basis. Right, you were talking about the basis and then a stepped up basis. Can you just kind of bring that back down to a level of, maybe, where people don't have any idea what we're talking about and just kind of explain what exactly is that?
Speaker 2:All right. Well, speaking in layman's terms, basis is referring to what you paid for a property. So if you bought the property, say, for $100,000, you put $50,000 worth of improvements into it, your basis or your cost would be $150,000. When you go to sell that property you compare your basis to whatever the sales proceeds were. So if you go to sell it for $200,000 and your basis is $150,000 by virtue of what you paid and put into it, you have a gain there of $50,000. So I think one of the confusing parts is when we talk about stepped up basis for inherited property.
Speaker 2:When you inherit a property, clearly you probably didn't pay anything for it. So the IRS allows you, based on the decedent's date of death, to determine your basis based on an appraisal. So in essence, even though you didn't pay for the property, that appraisal amount determines what your basis is. So it's just as if that person died that day. You took whatever the value was. You took that out of your own pocket, put that into the land. That's in essence what you paid for it. So you take that amount, add to it any improvements you might have and that's your adjusted basis to determine your gain or loss. So even though you didn't in essence pay for it. You did by virtue of the stepped up basis through the appraisal Sure.
Speaker 1:Does that make sense? Yeah, that was one of the better ways I've heard that explained. I think I might even understand it now.
Speaker 2:So, it's just like you bought the property with that money even though no cash traded hands.
Speaker 1:Perfect, that makes total sense to me. Hands perfect, nope, that makes total sense to me. Um. So, along with some other stuff to maybe clear up, is um it, if I, if I sell my farm, um, do I have to go buy another farm on a like kind exchange troy?
Speaker 2:no, like kind exchange is kind of a nomenclature that's counterintuitive. So if you sell row crop, that doesn't mean you necessarily need to buy row crop, it means you need to buy another income producing assets. So we see it happen all the time where somebody has an apartment complex and they want to do a late kind of exchange into row crop land. That is perfectly permissible under the regulations. What the IRS says it has to be held for income producing and it can't be speculative. So you can't say, well, I'm going to buy this 40 acres on the fringe of town, that's not income producing, hoping that the value increases and turn around and flip it. It has to be income producing. That's probably the underlying part of it that makes it a like-kind exchange. You're replacing one income producing property for another income producing property.
Speaker 1:If I had a speculative property in one place and I sold that to buy another speculative property, is that a like-kind?
Speaker 2:It would be a hard. That would be a tough stretch If neither one were income producing. That would be a tough stretch, as if neither one were income producing.
Speaker 1:that would be very tough. Yeah, yeah, so it's kind of. It's the. The 1031 exchange is very much for um producers or investors to use, a tool where they can um, um, like, change properties Is that, is that fair tool where they can change properties.
Speaker 2:Is that fair, where they can exchange income-producing properties, especially when their basis is low and they're faced with substantial capital gains? Yes, Perfect.
Speaker 1:What else can you think of about an exchange that we didn't discuss?
Speaker 2:I just think it's imperative to be kind of cognizant of some of the overriding rules. You know, from the day you relinquish your property you have 45 days to identify three replacement properties. You know you can do four if it's 200% or less of the value. But that gets to be really muddy. But it's imperative that you identify those three properties and then that identification is held A with the intermediary or with the attorney that's working with you on the transaction and then from that time, the day of close, you have 180 days to close on one of three said properties.
Speaker 2:So once you identify those three, you are locked into one of those three properties and let's just say everything goes south and you can't end up buying one of those three properties. So basically you're not doing an exchange and then you're facing the tax liability associated with that. So it's not the end of the world. You just got to pay the tax piper their fair share. So you're precluded from doing an exchange. The other thing is, when you're doing your sales transaction, that is, exchange property, the more fluid you can be with that closing date so you can work around those 45 and 180 days, the more you're going to have flexibility in replacing it. So if you have a buyer that can be fluid and leave that closing day or that window open say you know, a six month window that's going to give you a lot more latitude in finding a replacement property.
Speaker 1:Yeah, that's important to consider too is that that's one of the reasons why you want to make sure on your contract that it's denoted that this is either a 1031 exchange or a possible 1031 exchange, for not only the fact that you have to have that needs to be on there and the language needs to be right for the exchange, but also to let them know that there may be some hiccups and delays too.
Speaker 2:Yeah, and you always want to incorporate that language in your purchase contract or sales contract, even if you don't do an exchange. It just gives you or reserves you the right to do an exchange. It doesn't require you to do an exchange. So, at the end of the day, if you have that language and you don't do an exchange, no harm, no fault, yeah.
Speaker 1:So at the end, of the day, if you have that language and you don't do an exchange, no harm, no fault. Yeah, and I have had clients in the past that are like no, kobe, I don't want that in there, I don't want to muck anything up. And then in the end it's like oh, we found this other one. Do you suppose they're going to be all right with us doing an addendum or an amendment to change this to a 1031? And a lot of times the sellers may or you know they may be like nope, are not interested in that.
Speaker 2:Yeah, it's just better to have it in there from the get-go and if you don't utilize it like I said no harm.
Speaker 1:Yeah, tax day has a little bit of play into your 180 days, correct, if I remember right. I'm not a pro on it, but I think if it has to be done before April 15th, correct.
Speaker 2:Yeah, that's only for exchanges that occur right at year-end, so you've got to be cognizant of that. If it's outside of that year-end timeframe, then you don't have to be as stringent. But that is an important point to know, and if you partner with somebody who understands the tax regulations, they're going to guide you properly, so you don't have to worry about those little nuances.
Speaker 1:Yes, I just wanted to make myself sound smart.
Speaker 2:You've been sounding extremely smart, you did a great job.
Speaker 1:Yes, I just wanted to. Hey, I threw some nugget of knowledge out there that I knew, Troy.
Speaker 2:Something I forgot to mention, but that was a very good point that was the only thing.
Speaker 1:I think I caught the whole time time, though you you've definitely nailed it. So we're getting ready to close up here. What, what else do you think people should you know like there's other ways to to when you're dealing with property, there's other ways to help mitigate taxes? What, what other ways can you think of? That would be a good thing for people to maybe research when they're thinking about selling some property.
Speaker 2:Well, there's certainly Delaware Statutory Trusts. They're pretty common. It does give you some more latitude and it allows you to roll forward those gains into subsequent years and you can re-enroll them, is my understanding, into subsequent years and you can re-enroll them, is my understanding. There's deferred sales trust. There's also creative payment structures. Contract for deeds basically gets you the same result. You kick the can down the road when you're in a lower tax bracket, ideally, or you utilize the lower capital gains rates in the future. So there's a number of tax planning tools that aren't necessarily as complex and those you can explore with your tax accountant, your attorney or somebody who's experienced in land sales that can guide you, like I said before, so you can make an informed decision and you're not making decisions in a vacuum. That's probably the most important thing. If I could get anybody to walk away is to do your homework, get a better understanding, because the more you know, the more your situation is going to be bettered by your knowledge.
Speaker 1:You know that's really smart. I mean, when you talk about land contracts, that's not something, that's rare. I mean that happens quite a bit when you're talking about farm ground and things like that. They might work out better for a down payment. And then you know seven years of payments for the seller and the buyer.
Speaker 2:Yeah, I mean it's a win-win in the sense, with interest rates as high as they are now, you're going to get more for your money being in a contract for deed and they're going to get a lower rate.
Speaker 2:And number two you know you don't necessarily need a big downswing because there's not much they can do to the land that's going to harm it or devalue it. Granted, if it was covered, you know, with timber and they go in and harvest it, that's a whole different scenario. But row crop land, I mean, there's not a lot they can do to harm the value, as said land, outside of depleting the soil which, you know, with some inputs and fertilizer will bring it back to normal. So I don't get too concerned about, you know, a big enough downswing.
Speaker 1:As far as contractor deeds are concerned, Right and contractor deeds should not be misunderstood. For rent to own correct Like a contractor deed is you're transferring that property to the buyer and then you hold a contract on it like the bank. Essentially correct.
Speaker 2:Yeah, in essence you don't sign over the deed until the contract is paid in full. So there's really no risk to you. And if they default on it, you get that set piece of land back. And not only that, they forfeit all the payments they've made. So it's really kind of a win-win. In the event they get in a precarious or you know, a difficult financial position, you get the property back and you get the payments that they made and you get to retain them.
Speaker 1:It depends. I've had a friend of mine from Western Nebraska that's gotten a bar back about four times and he really wouldn't like to not have it back.
Speaker 2:I'm more headache with that. With row crop land, it's pretty simple. You collect two checks a year and you write a couple checks for property tax, and that's about it. Yeah, farm grounds.
Speaker 1:Farm grounds are a lot easier to deal with than a bar in Scotts Bluff, but anyway, absolutely Well in closing, in closing, man did you have?
Speaker 2:anything else? You could think of today or no. I certainly appreciate your time and uh going through these things and certainly if people want to reach out um get some more information, I'd be more than happy to consult or recommend somebody on that same vein, as far as a professional they can talk to.
Speaker 1:Yeah, and so how do folks get a hold of you, troy, if they have some questions, or what's the best?
Speaker 2:way to get you. I can be reached by virtue of my phone at 507-259-3047, or you can email at troy at highpointlandcompanycom. All one word, just as it sounds at highpointlandcompanycom. All one word, just as it sounds, highpointlandcompanycom. There's a number of considerations for various state implications and I can't speak to that. But taxes at the federal level are the same across all 50 states, so that's pretty consistent. So I try not to go too deep in the weeds on taxes. But you know, certainly get you to the right professional to guide you at the end of the day is important.
Speaker 1:I think that's you know. That's at least half the battle. Right is to hold your hand up and say I don't know and point to the guy that does you know. So I think that's more about what being a professional about is than just the knowledge that you have.
Speaker 2:Sure, and we're all specialists in our own nature, but you just don't know what you don't know, and that's why you got to seek out the information and align with the right people to guide you, to make sure, at the end of the day, you're compliant, because these requirements are somewhat complex and it's important that you stay within the boundaries or confinements of the regulations.
Speaker 1:Absolutely Well, sir. I appreciate your time today and we will see you all down the road.
Speaker 3:As we wrap up another episode of the American Land Seller Podcast. Thank you for joining us. Visit wwwamericanlandsellercom and find us on one of your favorite podcast platforms. If you would be so kind and you enjoyed today's insights, please like, subscribe, rate, follow and review us on whatever app you are listening or watching on. Connect with us on social media for updates until next week. Kobe wishes you success in your land endeavors. God bless you and have a great week.
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