--- title: Can a 1031 Exchange Be Used for Farmland? description: Can a 1031 Exchange Be Used for Farmland? Read this article to learn more. image: https://www.realized1031.com/hubfs/can%20a%201031%20exchange%20be%20used%20for%20farmland%3F-1349772438.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Can a 1031 Exchange Be Used for Farmland? Posted Jun 23, 2022 ![can a 1031 exchange be used for farmland?-1349772438](https://www.realized1031.com/hs-fs/hubfs/can%20a%201031%20exchange%20be%20used%20for%20farmland%3F-1349772438.jpg?width=750&height=392&name=can%20a%201031%20exchange%20be%20used%20for%20farmland%3F-1349772438.jpg) As has been pointed out time and time again, [the 1031 Exchange](https://www.irs.gov/pub/irs-news/fs-08-18.pdf) is in place to help investors defer taxes on capital gains by allowing them to swap one type of real estate held for trade or investment for another (with assistance from a [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary)). And most like-kind exchange discussions tend to center around commercial real estate, or residential property used to generate rental income. But can a 1031 exchange be used for farmland or ranchland? While agricultural property is typically used for business operations or investment purposes, the land also contains non-real property (think crops and cattle) and can also hold residential properties (think farmhouses or ranch homes). Agricultural land might also include mineral and water rights.  So, the answer here is yes, it is possible for farmland or ranchland to be used in a 1031 exchange swap. But as is the case with many Internal Revenue Code regulations, there are a handful of caveats. ### Ag Land Overview First, the broad view. Agricultural land can generally be traded through a like-kind exchange as long as: - It’s used for business purposes (you raise crops or your cattle grazes on it) - It’s used as an investment (you lease the land to a farmer, who raises crops or grazes cattle, and pays you rent under a landlord-tenant agreement) Furthermore, you don’t have to exchange your ag land for other ag land. “Like-kind” means you can swap that land into other real property (or properties) that are of equal greater value and defer those capital gains taxes.  ### Livestock, Crops, and Equipment Once upon a time (before the [Tax Cuts and Jobs Act of 2017](https://www.journalofaccountancy.com/issues/2020/oct/like-kind-exchanges-real-personal-property.html)), you could potentially replace or upgrade equipment used for crops or ranching through a like-kind exchange. The harvested crops and livestock were considered “property” and also possibly eligible for an exchange. But not now. The 1031 Exchange is allowable only for real estate used for trade or investment purposes.  There could be a few exceptions to this rule. Improvements to raw land (such as adding irrigation or planting crops) might qualify as improvement costs in a like-kind exchange situation, though they could fall under the [IRC’s Section 1245 rule](https://www.law.cornell.edu/uscode/text/26/1245). And while harvested crops aren’t “real estate,” unharvested crops and the land from which they grow, could count under the exchange rules. But before rushing to swap your corn field and its unharvested stalks for an apartment complex, check with your tax advisor and/or financial planner. ### Depreciation Recapture We’ve [written about depreciation recapture](https://www.realized1031.com/depreciation-recapture), which is essentially a tax the IRS charges when an investment property is sold. We’ve also indicated that a 1031 exchange can help defer triggering a depreciation recapture. But [according to the IRS](https://www.irs.gov/pub/irs-regs/depreciation_faqs_v2.pdf), land can’t be depreciated. This means no depreciation recapture if you should decide to sell your ranchland or farmland, right? Not so fast. While land isn’t depreciated, you are required to recognize land improvements (such as added irrigation) or land structures (which might include a barn, grain silo, or warehouse) for depreciation recapture purposes. Some of these might fall under Section 1245 requirements and [could impact what taxes can be deferred](https://blogs.claconnect.com/agribusiness/what-property-qualifies-for-1031-exchange/) or what gains might be realized. Again, it’s a good idea to talk to your tax advisor to eliminate any confusion. ### Miscellaneous Considerations Other issues to keep in mind with a farmland or ranchland 1031 exchange are as follows. **Mixed Use** “Mixed use” might bring up visions of residences combined with retail. But when it comes to agricultural property, mixed use means part of the land is given over to a human domicile, while the rest is dedicated to business. That residence can be a farmhouse or even a barndomium. Either way, if you live in it for any length of time, it’s considered a primary residence. And primary residences, for the most part, can’t be traded under 1031 exchange activity. Unless you take advantage of the [IRC Section 121](https://irc.bloombergtax.com/public/uscode/doc/irc/section_121). Section 121 [is an exclusion](https://www.realized1031.com/blog/you-can-do-a-1031-exchange-on-a-primary-residence-heres-how), rather than a tax deferral. But it can help: - Segregate the personal residence from the farm’s or ranch’s total sales price - Grant a tax exemption on the primary residence, as long as you’ve lived in the residence for at least two of the past five years That exemption is $250,000 to single tax filers and $500,000 to those who file jointly. **Water, Minerals, Ditches** Farmland and ranchland involve more than crops and grazing grasses. There could be mineral rights involved, along with easements and water rights. Can these be part of a like-kind exchange as well? Let’s take a look: - In many cases, mineral rights and royalties could be considered real property for purposes of a like-kind exchange - Water rights could also be eligible for exchange, based on state regulations - Ditches, easements, and rights-of-way could also be eligible for 1031 Exchange swaps While the 1031 Exchange process can be highly complex, using agricultural land as a relinquished or replacement real estate property has its own set of complexities. Because of this, we’ll reiterate what has been emphasized throughout this article—check with your tax advisor before embarking on a like-kind exchange of your farmland or ranchland.   This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice, meeting the particular investment needs of any investor. There is no guarantee that the investment objectives of any particular program will be achieved. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All real estate investments have the potential to lose value during the life of the investment. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Costs associated with a 1031 transaction may impact investor returns, and may outweigh tax benefits. Download The Guide To 1031 Exchange [![The 1031 Investor's Guidebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/1031-Exchange-eBook-250.png?width=250&height=250&name=1031-Exchange-eBook-250.png "Tackle the art and science of ...") ](https://www.realized1031.com/blog/can-a-1031-exchange-be-used-for-farmland#blogform) Download eBook ---   --- ### The 1031 Investor's Guidebook ![Download The Guide To 1031 Exchange](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/1031-Exchange-eBook-550.jpg?width=550&height=650&name=1031-Exchange-eBook-550.jpg) Tackle the art and science of completing your 1031 exchange. By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received. Search ### [Why Realized](https://www.realized1031.com/why-realized) - [Wealth Management](https://www.realized1031.com/the-wealth-management-gap) - [Why Realized](https://www.realized1031.com/why-realized) - [Our Process](https://www.realized1031.com/how-realized-works) - [Scenarios](https://www.realized1031.com/scenarios) - [Private Client Program](https://www.realized1031.com/private-client) - [Realized Exchange Services](https://www.realized1031.com/realized-exchange-services) ### [The Company](https://www.realized1031.com/about-us) - [The Team](https://www.realized1031.com/about-us) - [FAQ](https://www.realized1031.com/frequently-asked-questions) - [Testimonials](https://www.realized1031.com/testimonials) - [Press](https://www.realized1031.com/press) - [Careers](https://www.realized1031.com/careers) ### [Partners](https://www.realized1031.com/partners) - [Financial Advisors](https://www.realized1031.com/advisor) - [Broker Dealers](https://www.realized1031.com/partners/broker-dealers) - [Real Estate Agents](https://www.realized1031.com/partners/real-estate-agents) - [Certified Public Accountants](https://www.realized1031.com/partners/certified-public-accountants) ### [Resources](https://www.realized1031.com/resources) - #### Learn - [Articles](https://www.realized1031.com/blog) - [Glossary of Terms](https://www.realized1031.com/glossary) - [Capital Gains Tax Rates](https://www.realized1031.com/capital-gains-tax-rate) - #### Watch - [Video Library](https://www.realized1031.com/videos) - [Webinar Archive](https://www.realized1031.com/webinars) - #### Read - [Delaware Statutory Trust](https://www.realized1031.com/delaware-statutory-trust) - [Tenants-In-Common](https://www.realized1031.com/tenants-in-common-tic) - [1031 Exchange](https://www.realized1031.com/1031-exchange) - [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary) - [Qualified Opportunity Zones](https://www.realized1031.com/opportunity-zones) #### Realized - 500 W 13th Street Austin, TX 78701 - (877) 797-1031 ##### [Contact Us](https://www.realized1031.com/contact-us) - [![Realized on Facebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-facebook-whiterev.png?width=60&height=60&name=social-facebook-whiterev.png)](https://www.facebook.com/Realized/) - [![Realized on LinkedIn](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-linkedin-whiterev.png?width=60&height=60&name=social-linkedin-whiterev.png)](https://www.linkedin.com/company/realized/) - [![Realized on YouTube](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-youtube-whiterev.png?width=60&height=60&name=social-youtube-whiterev.png)](https://www.youtube.com/c/Realized1031?sub_confirmation=1) - [![Realized Holdings, Inc. BBB Business Review](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/bbb/RZH2-bbb-seal.png?width=40&height=65&name=RZH2-bbb-seal.png)](http://www.bbb.org/central-texas/business-reviews/real-estate-investors/realized-holdings-llc-in-austin-tx-1000112948/#bbbonlineclick) - [![FEA Logo](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/fea/RZH2-fea-logo.png?width=82&height=65&name=RZH2-fea-logo.png "FEA Logo")](https://www.1031.org) SECURITIES DISCLOSURE Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized Holdings”). Securities and/or Investment Advisory Services may be offered through Registered Representatives or Investment Advisor Representatives of Realized Financial, Inc. ("Realized"), a broker/dealer, member [FINRA](https://www.finra.org)/[SIPC](https://www.sipc.org/), and registered investment adviser. Realized is a subsidiary of Realized Holdings, Inc. ("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "As has been pointed out time and time again, the 1031 Exchange is in place to help investors defer taxes on capital gains by allowing them to swap one type of real estate held for trade or investment for another (with assistance from a Qualified Intermediary). And most like-kind exchange discussions tend to center around commercial real estate, or residential property used to generate rental income. But can a 1031 exchange be used for farmland or ranchland? While agricultural property is typically used for business operations or investment purposes, the land also contains non-real property (think crops and cattle) and can also hold residential properties (think farmhouses or ranch homes). Agricultural land might also include mineral and water rights. So, the answer here is yes, it is possible for farmland or ranchland to be used in a 1031 exchange swap. But as is the case with many Internal Revenue Code regulations, there are a handful of caveats. Ag Land Overview First, the broad view. Agricultural land can generally be traded through a like-kind exchange as long as: It’s used for business purposes (you raise crops or your cattle grazes on it) It’s used as an investment (you lease the land to a farmer, who raises crops or grazes cattle, and pays you rent under a landlord-tenant agreement) Furthermore, you don’t have to exchange your ag land for other ag land. “Like-kind” means you can swap that land into other real property (or properties) that are of equal greater value and defer those capital gains taxes. Livestock, Crops, and Equipment Once upon a time (before the Tax Cuts and Jobs Act of 2017), you could potentially replace or upgrade equipment used for crops or ranching through a like-kind exchange. The harvested crops and livestock were considered “property” and also possibly eligible for an exchange. But not now. The 1031 Exchange is allowable only for real estate used for trade or investment purposes. There could be a few exceptions to this rule. Improvements to raw land (such as adding irrigation or planting crops) might qualify as improvement costs in a like-kind exchange situation, though they could fall under the IRC’s Section 1245 rule. And while harvested crops aren’t “real estate,” unharvested crops and the land from which they grow, could count under the exchange rules. But before rushing to swap your corn field and its unharvested stalks for an apartment complex, check with your tax advisor and/or financial planner. Depreciation Recapture We’ve written about depreciation recapture, which is essentially a tax the IRS charges when an investment property is sold. We’ve also indicated that a 1031 exchange can help defer triggering a depreciation recapture. But according to the IRS, land can’t be depreciated. This means no depreciation recapture if you should decide to sell your ranchland or farmland, right? Not so fast. While land isn’t depreciated, you are required to recognize land improvements (such as added irrigation) or land structures (which might include a barn, grain silo, or warehouse) for depreciation recapture purposes. Some of these might fall under Section 1245 requirements and could impact what taxes can be deferred or what gains might be realized. Again, it’s a good idea to talk to your tax advisor to eliminate any confusion. Miscellaneous Considerations Other issues to keep in mind with a farmland or ranchland 1031 exchange are as follows. Mixed Use “Mixed use” might bring up visions of residences combined with retail. But when it comes to agricultural property, mixed use means part of the land is given over to a human domicile, while the rest is dedicated to business. That residence can be a farmhouse or even a barndomium. Either way, if you live in it for any length of time, it’s considered a primary residence. And primary residences, for the most part, can’t be traded under 1031 exchange activity. Unless you take advantage of the IRC Section 121. Section 121 is an exclusion, rather than a tax deferral. But it can help: Segregate the personal residence from the farm’s or ranch’s total sales price Grant a tax exemption on the primary residence, as long as you’ve lived in the residence for at least two of the past five years That exemption is $250,000 to single tax filers and $500,000 to those who file jointly. Water, Minerals, Ditches Farmland and ranchland involve more than crops and grazing grasses. There could be mineral rights involved, along with easements and water rights. Can these be part of a like-kind exchange as well? Let’s take a look: In many cases, mineral rights and royalties could be considered real property for purposes of a like-kind exchange Water rights could also be eligible for exchange, based on state regulations Ditches, easements, and rights-of-way could also be eligible for 1031 Exchange swaps While the 1031 Exchange process can be highly complex, using agricultural land as a relinquished or replacement real estate property has its own set of complexities. Because of this, we’ll reiterate what has been emphasized throughout this article—check with your tax advisor before embarking on a like-kind exchange of your farmland or ranchland. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice, meeting the particular investment needs of any investor. There is no guarantee that the investment objectives of any particular program will be achieved. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All real estate investments have the potential to lose value during the life of the investment. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Costs associated with a 1031 transaction may impact investor returns, and may outweigh tax benefits.", "articleSection" : [ "1031 Exchange" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2022-06-23T12:00:02+0000", "datePublished" : "2022-06-23T12:00:01+0000", "description" : "Can a 1031 Exchange Be Used for Farmland? Read this article to learn more. ", "headline" : "Can a 1031 Exchange Be Used for Farmland?", "image" : { "@type" : "ImageObject", "height" : 392, "url" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/can%20a%201031%20exchange%20be%20used%20for%20farmland%3F-1349772438.jpg", "width" : 750 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/can-a-1031-exchange-be-used-for-farmland", "name" : "Can a 1031 Exchange Be Used for Farmland?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/can%20a%201031%20exchange%20be%20used%20for%20farmland%3F-1349772438.jpg" } ```