Why Not All Acres Should Be Treated the Same

Agricultural land is rarely acquired all at once.

Most landowners accumulate farmland over years, sometimes decades. Parcels purchased at different times carry different cost bases, which means different capital gains tax exposure when sold.

In a multi-parcel farmland sale, treating every tract the same can be a costly mistake.

Different Cost Basis, Different Tax Consequences

Parcels with a low tax basis generate higher capital gains. Parcels with a higher basis generate less.

That difference creates planning opportunities.

When selling multi-parcel farmland, a landowner may choose to:

• Sell higher-basis parcels for cash, minimizing taxable gain
• Exchange lower-basis parcels through a 1031 exchange to defer larger gains

This approach allows a seller to create liquidity while preserving tax deferral on the parcels with the greatest appreciation.

But structure matters.

Structuring a Split Sale and 1031 Exchange

If some parcels are sold for cash and others are part of a 1031 exchange, separate purchase and sale agreements are essential. Combining everything into one contract can create structural issues and jeopardize the exchange.

Coordination is critical. Brokers, attorneys, buyers, and the qualified intermediary must understand the exchange strategy from the beginning. Mid-transaction changes increase risk and compress already strict 1031 timelines.

Because 1031 exchanges require identification within 45 days and closing within 180 days, multi-parcel transactions demand early planning and precision.

Common Challenges in Multi-Parcel Farmland Transactions

Beyond tax strategy, multi-parcel farmland sales often involve additional complications.

Title and Access Issues

Encroachments, irrigation lines, utility easements, unclear mineral or water rights, and missing access permits can impact value and marketability. These issues frequently vary by parcel and should be reviewed early.

Multiple Uses and Third-Party Rights

Farmland may include solar leases, timber rights, hunting agreements, or other third-party uses. These arrangements can conflict with a buyer’s intended plans and affect parcels differently.

Zoning and Future Development

Legal road access for newly formed parcels must be confirmed. Local zoning and ordinances, particularly for future uses like solar development, can create additional hurdles.

Buyer Alignment and Portfolio Optimization

As parcel count increases, so does complexity. Matching the right buyer to the right tract, while coordinating exchange strategy, requires careful analysis.

Start Planning Before You Go to Market

The biggest mistake in a multi-parcel farmland sale is waiting too long to plan.

Deciding which parcels to sell for cash and which to include in a 1031 exchange should happen before listing the property. Once under contract, flexibility narrows and timelines accelerate.

Engaging experienced land brokers, exchange facilitators, and attorneys early allows you to:

• Evaluate cost basis by parcel
• Model capital gains exposure
• Structure contracts appropriately
• Resolve title and access issues
• Navigate strict 1031 exchange deadlines

Multi-parcel farmland transactions require more than a standard sales approach. They require tax awareness, structural precision, and coordinated execution.

If you’ve accumulated farmland over time and are considering selling, a thoughtful 1031 exchange strategy can preserve capital, create liquidity, and reposition your portfolio for what comes next.

The information presented is for information purposes and is not intended as investment, legal, tax or compliance advice. Land 1031 does not offer or sell investments or provide investment, legal, or tax advice.

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