Top 50 Questions about Farmland
When you sell farmland, you’ll navigate three primary types of taxes. Understanding how each tax works helps you plan ahead, meet your obligations, and protect the value of your sale.
1. Property Taxes
Timing: In Iowa, property taxes run a year in arrears, so you pay this year for last year’s taxes.
What You Owe: At closing, the title company prorates taxes based on the exact day you transfer ownership. This ensures both parties pay their fair share.
2. Transfer Tax (Revenue Stamps)
The State of Iowa charges a tax when you transfer property ownership.
Rate: $1.60 per $1,000 of the sale price.
Example: On a $1,000,000 sale, the transfer tax totals $1,600.
Because this fee directly reflects the sale price, you can estimate it easily during planning.
3. Capital Gains Tax
You’ll owe capital gains tax on the difference between your basis and the price you receive for the property.
What You Pay: Your basis reflects what you originally paid for the land or its inherited value.
Tax Components: Federal capital gains, Iowa state tax, and possibly net investment income tax may apply.
Because every situation is different, it’s wise to consult a CPA early in the process. They can help you evaluate strategies to reduce your tax liability, including the possibility of using a 1031 exchange.
Key Takeaways
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Property Taxes: The closing company prorates taxes based on the transfer date, so you only pay taxes for the time you owned the farm.
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Transfer Tax: Iowa charges $1.60 per $1,000 of the sale price, which is often under $1,000 for many transactions.
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Capital Gains Tax: You pay tax on the profit from the sale, based on your basis and current federal and state tax rates.
For personalized guidance on taxes and selling your farmland, contact David Whitaker – Iowa Land Guy today!
David Whitaker | Iowa Land Guy
