Many New York farms have been owned by the same family for generations. With property values rising, some owners might be looking to cash out but are concerned about the capital gains tax they might have to pay on the appreciation. There is a provision in the Internal Revenue Code, however, that might allow them to defer that tax at least temporarily if the sale transaction is properly structured.
Under Section 1031, taxpayers can defer the recognition of a capital gain if a piece of property is exchanged for another property of like kind. This can happen simultaneously, or it can be deferred if structured properly as part of the same transaction. The acquired property does not have to be identical. In this example, most real estate that will held for business or investment purposes will qualify as “like kind”. This can enable a seller to earn a higher rate of return than that being produced by a farm.