Tax‐deferred exchanges of farmland: theory and evidence from federal tax data
Abstract
Purpose
The purpose of this paper is to examine the use of Section 1031 of the Internal Revenue Code (IRC), a piece of US tax law that allows for tax‐deferred exchanges of like‐kind property.
Design/methodology/approach
The paper derives a theoretical premium value for exchanges and presents the first national level analysis of Federal tax data on the use of like‐kind exchanges involving farmland between 1999 and 2005.
Findings
There is significant interest in Section 1031 from stakeholders in rural communities because there is widespread belief that the recent growth in farmland values may have, in part, been stimulated by Section 1031 exchanges of farmland. Despite these concerns, little is known about the extent of such exchanges.
Originality/value
This paper provides insight into the value and use of the IRC's Section 1031 provision. Based on simulations of a theoretical model using plausible assumptions about asset growth, the paper shows how proposed tax changes will affect the tax value of the deferral.
Keywords
Citation
Williamson, J.M., Brady, M.P. and Durst, R. (2010), "Tax‐deferred exchanges of farmland: theory and evidence from federal tax data", Agricultural Finance Review, Vol. 70 No. 2, pp. 214-230. https://doi.org/10.1108/00021461011065256
Publisher
:Emerald Group Publishing Limited
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