My family has land it is going to sale. It is considered agriculture. Will it be taxed at the 15% rate?

Question

We have rented the land out the last five years for cattle. Prior to that, we raised cattle on it. Are there any tax breaks for agriculture land or can your cost be adjusted?

Answer 1

Unless you also occupied the land as your principal residence the sale will generate a capital gains tax if you sell it for more than your adjusted basis. Since you have rented it out for 5 years now it probaly won't qualify for the exclusion on sale of a personal residence even if there is a home situated on it.

Since you have owned it for more than one year it's treated as a long-term capital gain and is taxed at a lower rate. The rate depends upon your marginal rate. If your marginal rate is 15% or less the tax rate is 5%. If your marginal rate is higher than 15%, the rate is 15%.

There are no breaks on the sale of ag land as far as Federal income taxes are concerned. Your state may treat it differently so you'll have to check with your state's tax authorities.

The most common break on ag lands is for property taxes where the value of the land for property tax purposes is pegged at it's income generating ability not the (usually higher) fair market value of the raw land.

Answer 2

The only breaks from agricultural land come from the local taxing municipality, in terms of lower property taxes. When you sell the land, your capital gains will be assessed on the difference between your cost basis, whatever that may be, and the actual amount you realize from the sale of the property.

Be advised to have this transaction examined by a qualified CPA for capital gains treatment.