Accredited Land Consultant
Managing Broker Mason & Morse Ranch Company
Published: August 4th, 2021
Inflation and the implications of proposed changes in the capital gains tax, estate taxes and 1031 tax deferred exchanges are currently the common topics in conversations with our client base. These areas of tax law are major factors in the decision to buy and sell large assets in the current economic environment.
"With strong buyer demand for quality real estate investments and potential increase in capital gains tax and changes to 1031 tax deferred exchanges looming on the horizon, now may be the right time to market your farm, ranch or land for sale. Bart Miller"
At Mason & Morse Ranch Company, dba RANCH COMPANY, we market a variety property across the U.S. including farm, ranch, recreation, conservation & lifestyle assets. Our agents “Live It to Know It” and offer our clients more than 133 years of experience.
In our previous farm, ranch land real estate market report (click here to see previous archive article dated April 1, 2021), we expected 2021 to be an active year in real estate as the markets navigated beyond presidential election results, trade, a bullish stock market, and moving past COVID-19. We expected to see strong activity for land and most forms of real estate with farm, ranch, recreation or conservation characteristics. Agriculture production lands were the slowest to transact throughout last year as the ability to turn a profit or return on investment was impacted by low commodity prices and high input costs. This trend is shifting quickly however with higher grain prices in 2021 and inflation looming. We expect commodity prices will continue to move upward slowly into 2022. Demand for quality production agricultural farms, ranches and land with conservation opportunities will continue to increase as a hedge against inflation and stable long-term investment.
Market Drivers
Inflation and the implications of proposed changes in the capital gains tax, estate taxes and 1031 tax deferred exchanges are currently the common topics in conversations with our client base. These areas of tax law are major factors in the decision to buy and sell large assets in the current economic environment.
Currently, buyer demand is strong across the different farm, ranch and land property types we market for sale. Investors are looking for quality hard assets. Since the beginning of the year inventory of farms, ranches and recreational land for sale has tightened more than we expected. Typically, a farm, ranch or recreational property is on the market for 12-16 months before it sells. In the current economy we are experiencing sales in half that time for quality properties priced accurately.
Inflation and the Federal Reserve
In the current market we are seeing an increase in buyers looking for a safe investment and an inflation hedge with the advantages of conservation, use and enjoyment during ownership. Overall, consumer expectations for inflation have risen to 4.8% over the next 12 months. The Federal Reserve has taken a different view maintaining that current inflation trends are only transitory due to pent up demand and supply chain lags, stepping back down sometime later this year. The central bank is forecasting the long-term inflation rate to rise from previous forecasts to 3.4 percent through 2022 with interest rate hikes in 2023. Traditionally the Federal Reserve likes to see inflation around 2 percent. It looks like normal inflation is an unlikely figure for the near future.
Proposed Changes to Capital Gains Tax, Estate Taxes and 1031 Exchange
Long-term capital gains, estate taxes and 1031 exchanges are designed to encourage investment in farms, ranches and businesses that grow our economy and create jobs. Without question any of the proposed tax law changes, by the current administration will increase taxes on the sale or transfer of farms, ranches and land in some form or another. Will the proposed changes get passed through legislation and become law? That is still an unanswered question, but the risk is there and its significant.
With strong buyer demand for quality real estate investments and potential increase in capital gains tax and changes to 1031 tax deferred exchanges looming on the horizon, now may be the right time to market your farm, ranch or land for sale.
Deciding to sell your farm, ranch or recreational property that’s been part of a family legacy is a serious financial and emotional decision. Our brokers "Live It to Know It" and that means our brokers have sat at the same family table working out the various estate decisions needed to sell property or transfer equity from one generation to the next. It's not easy and can take a lot of communication. Therefore, rest assured when working with one of our brokers we understand the value of your property but also the financial and emotional impact it may have on all family members.
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