Key Considerations When Selling Farmland

Buying or selling farmland is an important decision for a farmer. If you’re considering selling your farmland, you are likely preparing for retirement and the next step in your journey of life. However, selling farmland is not quite as straightforward as selling a typical home, and poses some important questions about whether or not selling your property is the best financial decision. In this article, we take a look at 3 key considerations when selling farmland, so you can be prepared before meeting with your advisor.

If the sale is part of a retirement plan, have you considered all your options?

If you’ve owned the same farm for many years, you’re likely looking to sell now as a way to fund your retirement. However, did you know that renting your farmland could be equally lucrative, and would allow you to continue to hold the title on your farmland?

RSM Canada tells us more about considering all of your options before choosing to sell your property:

“As you approach retirement, ask yourself if selling is the most advantageous action for your cash flow and retirement needs. Where no succession plan exists, we sometimes see farmers selling farmland as part of a retirement plan. Certainly, such a sale creates extra cash flow that can fund retirement; however, renting the land may be equally feasible. If a farmer decides to rent the farmland and use the rental income for living expenses in retirement, this may beget more after-tax revenue when compared to investing the money from the sale once taxes have been paid. However, if you are renting out the land for a longer duration, bear in mind this may affect the use of the capital gains exemption.”

Who is going to be liable for the tax bill?

Purchasing and then selling farmland can come with some complications, especially if a spouse is adding onto the title after the fact. Knowing who is liable for the tax bill is an important piece of information you are going to know before choosing to sell your property, as different holdings will have different tax implications.

Baker Tilly explains why selling your farmland may cost you more than you expected:

“When you purchase farmland, the title is assigned to an individual, a partnership, or a corporation based on who purchased the property. Some farmers who hold land in personal hands and add their spouse on the title have the misconception that he/she is liable for half of the tax arising and they have the ability to use the spouse’s capital gains exemption to reduce taxes on the sale. However, they don’t know if he/she has beneficial ownership. As a result, they may not be able to split or reduce the income tax bill with their spouse. This leaves some uncertainty regarding who is actually selling the farmland. Is it just the one spouse, is it jointly held or is it held within a corporate structure? Each of these holdings has different tax implications, so it’s critical you learn who actually has the title and beneficial ownership.”

Does your real estate agent have experience with selling farmland?

Lastly, does your real estate agent have experience with selling farmland? Selling farmland is a complex transaction and requires a significant amount of information and history on the land. Make sure you hire a real estate agent who has plenty of experience with selling farmland, so they can make the process as easy as possible for both you and potential buyers.

Fretwell & Associates tells us why it’s important to hire a real estate agent with experience in selling farmland:

“If you are considering selling land, work with a local agent that you trust, who knows the industry and the area.  Selling land is an in-depth process: you need to be able to price it with the market, provide aerial maps, soil maps, FSA information, crop history, cash rent agreements, boundary lines, etc. Having an experienced agent who knows the area, the market, and where to find this information and make it available to potential buyers, will make the selling process so much easier. Also, make sure they are able to effectively market your property – having your listing in the right websites and publications will ensure a timely sale.”

Are you considering selling your farmland? With over 30 years of experience selling farmland and rural properties in the British Columbia market, we can help you get the most out of selling your property. Contact Cascadia Pacific Realty, Ltd today to get started!