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Winter 2004
Volume 21, Issue 2
Hard Decisions
Hertz Farm Management helped smooth the way for a 1031 exchange
Selling a family farm, especially one that has been in your family for years, involves more than just good business decisions.
Just ask Marie Timmer. Last year, she and her husband, Richard, made the difficult decision to carry out a 1031 tax-free exchange, selling her three Iowa family farms to buy one near Woodhull, IL.
The farms they sold, located in Butler and Hardin counties, had been owned by Marie’s family. One was a “Century” farm and during her upbringing, Marie either lived on, or visited all the farms.
As an adult, Marie left farm life and taught in Rock Island, IL, where Richard built his CPA practice. Their new home was about 3 1/2 hours away from the family farms. As time passed, visits to the farms became less frequent and more troublesome.
“The farms were a long ways off,” Marie said. I was really grappling with it. We discussed selling for many years, but never did anything about it.”
Ultimately Marie elected to pursue a 1031 tax-free exchange, a move that would eliminate her need to pay capital gains taxes on the three family farms. She would exchange them for a single farm closer to the Timmer’s home in Rock Island.
Marie and her mother had started working with Sterling Young as their Farm Manager at the Hertz Farm Management office in Mason City, IA in the 1980’s. Once she had made her decision, Sterling was the first person Marie called.
Young pulled together a team that included Max Holmes of the Hertz real estate division and Ed Kiefer of the Hertz staff at Geneseo, IL. Holmes and Young began appraisals of the Iowa farms and suggested that an auction might be the best way to complete the exchange within the IRS required timeframe. The Timmers agreed that an auction seemed to fit their situation best.
Now began the process of identifying a suitable replacement property. By chance, Marie called Brice Weber, the son of the farmer on one of Richard’s properties near Woodhull, IL. Did he know of any available properties? Not only did Brice have an available property in mind, he also had an available farm operator in mind, himself!
The Hertz team quickly determined that the property was within the Timmer’s acquisition range and that Brice, although less experienced than most of the operators on Hertzmanaged farms, was a young man born to farm.
The three Iowa farms were auctioned by Hertz on the same day, one after another. Marie remembers the day as being very emotional and chose to remain in Rock Island.
Hertz was in contact with Marie and Richard frequently throughout the day, informing them of how the sales were progressing. All three farms sold, returning more than Marie and Richard expected.
“It was very hard to sell grandpa and grandma’s farms,” Marie said, “but it went so smoothly. We couldn’t have done it without the Hertz involvement.”
After the auctions, the Hertz team began closing on the replacement property Brice Weber had suggested. Timing was critical in order to qualify for the 1031 exchange and Ed Kiefer secured a purchase agreement within weeks. He later informed the Timmer’s that if the purchase of their preferred property had faltered, he had an alternative identified.
The new farm is close enough for the Timmers to enjoy and is under the watchful eye of Hertz farm manager Chad Kies, who helped qualify Brice Weber to custom operate the farm. Hertz helped the Timmers through each stage of farm ownership.
“We enjoy the Hertz team concept,” Marie said. “No farm manager is out on his own. They draw on the experience of all their people. And all those members have farm backgrounds. “They’re there. You can easily reach them. Hertz Farm Management never pushed us, but they quietly helped us. Even now when we bring up an idea, they evaluate the alternatives and provide good recommendations. They’re patient.”
What is a 1031 Tax-Free Exchange?
If you’re reluctant to sell a farm because of potential capital gains taxes, you might want to consider a 1031 tax-free exchange.
Here’s how it works. If you sell a property owned for investment or business and the money you make from the sale is used to purchase a like property, you may avoid capital gains taxes.
So what is considered a like property? Real estate held for trade or business or investment can be exchanged for real estate held for trade or business or investment. Examples include a farm for a farm, commercial real estate for a farm, apartments for a farm, a car wash for a farm or vice versa. You must identify a new property to buy within 45 days after the property you are selling is closed. The replacement property must be acquired within 180 days of closing on the sale of the first transaction.
The proceeds from the sale must be directed through a qualified intermediary.
Hertz Farm Management handles 1031 tax-free exchanges regularly and can help complete yours. For more information, please call one of the Hertz offices.
