Owning & Selling Farm Land

How to settle the tax bill when selling farm land

By General, Owning & Selling Farm Land

Every now and again, I find clients who are uncertain or upset about how taxes should be paid/split when selling farm land. While many terms of a land deal can be unique, we generally see a common theme for how to handle taxes when selling farm land. The general rule of thumb goes like this…the one who gets the benefit from the land for the current tax year (either in income or the crop) pays the tax. Let me give you a couple of examples:

  • Land sold by an owner (family/investor) that is NOT farming the land – To determine who pays the taxes in this situation, ask this key question:
    • Has the seller received the rent income for the year?
      • Yes: Seller pays the full taxes (this assumes the seller keeps the rent check).
      • No: Buyer pays the full taxes (this assumes the buyer gets the rent check).
      • Partially: It isn’t uncommon for farm rents to be paid 50/50 in the spring and fall. If the seller has received half the income, then they usually would pay half the taxes. This again assumes the seller is keeping the check for half of the rent.
  • Land sold by an owner who is also farming the land – This one is more simple generally…just ask this:
    • Is the seller going to be planting & harvesting the crop on the land during the year the land is sold?
      • Yes: Seller pays the taxes (this assumes buyer takes possession after the crop year ends)
      • No: Buyer pays the taxes (this assumes buyer takes possession before the crop year starts)

Of course this point can be negotiated, but usually the above standards are applied by buyers and sellers of farm land in our area of North Dakota and Minnesota. If you have seen other methods used successfully or have questions, feel free to contact us to share.

Until next time!



What is a Private Sale?

By General, Owning & Selling Farm Land

As you likely know, there are MANY ways in which farm land can be sold. Most people tend to think of auction sales, sealed bid sales, or traditional listings. However, another VERY common method used in selling farm land is what we call the “Private Sale” method. No, this isn’t some Black Friday or Cyber Monday gimmick used by retailers. It is a very legitimate sales strategy we can employ to help Clients achieve their goals.

What is a private sale?

If you take a look at the recent land sales we have handled, you may notice a good number of these parcels show the method of sale was “Private Sale.” In those cases, the Client did not want us to publicly list and advertise their land. Because of that, we did not list it in the local newspaper or hang posters at all the area elevators and cafes. For various and valid reasons, these Clients wanted to maintain a level of privacy and confidentiality through the process of selling their land. The private sale method allows us to do just that.

How does a private sale work?

While this method of sale clearly limits the marketing strategies we can employ (sorry Agweek, no advertising budget for you!), it does not limit our ability to find buyers and achieve great results for our Clients. In these circumstances, first we work with Clients to build a targeted list of potential buyers. Then, we execute a strategy of quietly reaching out to let them know of the confidential opportunity to buy the land. We do this through phone calls, emails, direct mailings, and in-person meetings. As a result, we are usually able to get multiple parties interested in the land through these tactics. In the end, we are able to negotiate a good price without doing so in the public eye.

Perhaps you own land but do not want to tell the neighbor or family you are selling. Or maybe you just do not like your personal business aired on the line for all to see. Whatever your reason, we can help you discreetly and successfully sell your land should a Private Sale be your preferred method. Contact us today to learn more if you would like!

Until next time!


What is a Sale Leaseback?

By General, Owning & Selling Farm Land

There are many reasons why ag land is sold, and there are many different methods it can be sold by. A rising trend among farm land sales in the recent past has been something commonly referred to as a Sale Leaseback. You may have heard the term before, but I still find some people aren’t all that familiar with how they work. Here is a good example of what they are and how they work:

  • For various reasons, fictional owner “Valley Dirt Farms” needs to sell some land but does not want to give up farming the acres.
  • For many years they have owned and farmed a quarter of land that is a solid producing parcel that they would prefer to keep farming, and they could justify paying a strong rent to do so.
  • They decide to sell this quarter but only on the condition they are able to lease it back from the new buyer (hence the “leaseback” portion of the sale). Valley Dirt Farms is willing to offer a multi-year rental agreement at a good cash rent price.
  • The land is marketed with this condition and a focus on the returns that a potential buyer could achieve. Naturally, this marketing focuses on the Investor category of buyers, not the owner/operators who still tend to dominate the land buying market.
  • Once a buyer/investor steps forward and final terms are negotiated, a long-term lease is usually signed at or near closing that provides A) the seller with the opportunity to continue to farm the land, and B) the buyer with the income and return they were interested in. Win-win!

We have handled multiple Sale Leasebacks here and have found great success in marketing to this category of buyers with our deep network of regional and national investors. If you have interest in exploring your own Sale Leaseback (on the buy OR sell side), please do not hesitate to contact us!

Until next time!



Owning and Selling Farm Land with Undivided Interests

By Owning & Selling Farm Land

When it comes to owning land, many people tend to think about ownership in the singular form…one piece of land has one owner. However, it is quite common that a single piece of land has 2 or more owners. It might be a husband and wife, related or unrelated business partners, or quite commonly heirs of land that was passed down from a previous generation. There are two primary ways the legal title to property is held when 2 or more owners are involved: Tenants in Common and Joint Tenancy. In this post, we’ll cover what we see as the most common type with land owners generally: Tenants in Common.

The main thing to know about being Tenants in Common is that each owner has what is called an “undivided interest” in the parcel. Having an undivided interest means that no one owner has a specific piece of the land, but rather a share (or “interest”) in the entire property. So for example, if two people equally own 160 acres as Tenants in Common, each would have a 50% undivided interest in the entire 160 acres. They do not each own a specific 80 acres with set boundaries.

We see this method of ownership quite frequently in the Red River Valley of North Dakota and Minnesota (it’s common in many other places too), and usually it is because of 2 primary reasons:

  1. Partners came together to buy a piece of land to operate it or for an investment, or more frequently
  2. The land was divided and passed down to multiple heirs through an estate or trust

Owning land with other parties can work very well and there are many reasons why. However, there are times when being Tenants in Common with other owners can have its downsides too. Consider the following two scenarios:

  • Three siblings own two quarters of land together as Tenants in Common. One of them farms the land, then pays a pro-rata share of rent to the other two siblings. The land is good but would be much improved with drain tiling, which typically comes at a cost of around $1,000 per acre. The sibling farming the land is pushing to get the land drain tiled at a cost of over $300,000 (or $100,000 to each owner). The other siblings do not want to put that much cash into land they don’t entirely own.
  • Four cousins inherit a quarter of land when their uncle passes away. Shortly after the funeral, one of the cousins finds himself in financial trouble and wants to sell the land to pay off some debts. Meanwhile, the other 3 cousins are content to receive the rent income and have no desire at all to sell.

You can see the potential trouble ahead in each of those scenarios. Thankfully there are options for owners to consider when it comes to the sale of land owned as Tenants in Common with undivided interests. They include…

  • There is nothing to stop a Tenant in Common from selling their undivided interest to someone else. They can sell it to one of the co-owners of the same land, or to a completely different buyer unrelated to the current ownership group. There are some buyers out there who are open to buying undivided interests, but the downside here is that not ALL buyers are open to that arrangement. Many buyers of land often want to have sole title to the property, usually to avoid the types of issues described in the scenarios above. When you reduce your potential buyer pool, you also reduce your chances of achieving the highest sale price for your land.
  • Another method is to “partition” the land through some legal agreements & documents whereby the undivided interests become DIVIDED interests into individual sole title owners. In this case, each owner receives a share of their deeded land with specific boundaries . For example, if two partners own 320 acres as Tenants in Common, they could have a Partition Agreement and Quit Claim Deeds drawn up to split off 160 acres to one party and the remaining 160 acres to another party. This process can be very clean or it can be very messy. It all depends on the willingness of the partners to divide the land along with how easily the land can be divided so that all partners receive their equitable share.
  • If owners cannot agree on how to partition the land, then the courts can step in and help get the land partitioned. Not ideal of course, but it is an option. Seek good legal advice if you are in this situation. This is usually called a “suit to partition” or “partition action” in the legal system.
  • In terms of the act of actually splitting up ownership of the land, this might be easy and it might be incredibly difficult. For example, splitting a quarter of land with consistent soils, drainage, and tillable acres across it would be quite simple. Each owner could feel good knowing the value of the land they received is an equitable share based on the percentage they owned under the Tenants in Common scenario. However, splitting a quarter of land that contained a mix of wetlands, pot holes, waste acres, varying soils of high and low quality, etc. could prove VERY difficult to divide. Some owners may receive higher value land and others may receive lower value land, so perhaps the acres aren’t split cleanly across the interests in the partnership. Appraisers, realtors and auctioneers can be good sources of help with how to equitably split a piece of land with varying qualities (feel free to Contact Us if you would like!).

If you find yourself in a tough position as Tenants in Common, take heart as we have seen these situations can be resolved successfully. The road may be bumpy at times but there are many who have gotten through it just fine and you can too! And remember that as Realtors and Auctioneers, we are not Lawyers or Accountants so make sure you consult yours to get into the details.

Until next time!