Understanding Taxes When Selling Farmland?
Top 50 Questions about Farmland
Hey, it's the Iowa land guy. And here's the top 50 questions that I get asked about farmland. So when I'm selling my farm, what do I have to pay for taxes? I want to talk about three different types of taxes. You're going to have to pay. Let's go with the first one that most people think of property tax.
Okay. It's due in September. It's due in March. Realize that in Iowa property taxes are paid a year in the rear. So if we're paying this year, we're actually paying for last year's taxes. in this calendar year. So when we sell a property, we have to bring those property taxes up to date. So we forward them for the whole year that we've had it, but then we also prorate taxes to the closing date.
So how we do this is we divide the whole year um, by 365 days, okay, and take the your tax amount divided by 365. We get a per day tax amount. We take that and we push it forward Only the days that you own the farm, okay? So if you sell the farm, when we say we prorate taxes to the day of closing, what we mean is you're only going to pay when you own the farm, and as soon as they buy it, they're going to start paying that day.
So that's property tax, number one. Number two is revenue stamps or transfer tax. We cover this in a different video, but transfer tax is a tax by the state of Iowa to help make revenue anytime a property changes hands. Uh, arguably on most farms it's under 1, 000, but the more your farm's worth, the more you'll pay in tax.
It's 1. 60 per 1, 000. The third tax that you got to think about paying is capital gains tax. There's another video on this one as well. So check out our other videos, but capital gains tax in short is any amount. Your basis is what you bought the farm for or inherited it for. And your relinquished price is what you sold it for.
You pay on the gain in between and so there's different fees associated with the gain in between whether it's a federal tax, a net investment tax, or it's a state capital gain tax. Um, make sure you talk with your CPA on this one, but there's three different taxes you got to think about when selling your farm.
David Whitaker | Iowa Land Guy