Is the thought of paying taxes to the federal government keeping you from selling land? What if there was a way to completely eliminate paying taxes on the sale of your land and have the federal government pay you? Sound too good to be true? That is exactly what we have helped many people do.
The IRC Section 1031 Exchange is one of the most powerful tax-saving and wealth-building tools available for people selling highly appreciated farm or ranch land. A properly structured 1031 exchange allows a person selling a farm or ranch to sell land, to reinvest the proceeds in other real estate, and to defer capital gain taxes.
To quote the tax code, IRC Section 1031 (a)(1) states: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”
Many farm and ranch owners believe the “like-kind” definition means they have to exchange their land into other land. This is not the case. Fortunately, the definition for “like-kind” property is very broad. One can exchange land into other types of investment property such as office buildings, apartment complexes, rental houses etc.
For those who are selling their farm or ranch and retiring, the thought of investing in real estate other than land can be daunting. Most farm and ranch owners are very knowledgeable about investing in land but have little experience investing in other types of real estate.
The goal for most retiring ranch owners is to generate stable retirement income. While land may offer investors good appreciation potential, the cash flow returns on land is typically lower than the returns offered with other types of commercial property.
Contrary to many people’s understanding, the federal government does not own most of their real estate. They instead lease the buildings that house federal agencies. The General Services Administration (GSA) is an independent agency of the U.S. government that provides workplaces by constructing, managing, and preserving government buildings and by leasing and managing commercial real estate. In other words, the GSA serves as the landlord of the federal government.
The GSA is the nation’s largest public real estate organization. It owns and leases over 300 million square feet of space in 9,600 buildings in more than 2,200 communities nationwide. As an investor, you can purchase a federal government leased building, own it by yourself and receive rental income payments from the U.S. government.
Your tenants may include agencies such as the U.S. Social Security Administration, U.S. Department of Veterans Affairs, USDA, U.S. Forestry Service, U.S. Bureau of Land Management, U.S. Department of Energy and the U.S. Postal Service.
The benefits of owning federal government buildings include:
• Stable monthly income;
• Long-term leases;
• No default risk;
• High historical lease renewal rate; and
• Cost of living adjustments.
If you would like to defer taxes on the sale of your land with a 1031 exchange and invest the proceeds in office buildings leased to the federal government, call 800-517-1031. — Chris Nolt, WLJ correspondent
(Chris Nolt is the owner of Solid Rock Wealth Management, Inc. and works with families who are selling a farm or ranch and transitioning into retirement. For more information, call 800-517-1031 or visit: www.solidrockwealth.com.)
