"What could possibly go wrong" should not be the thinking of someone entering into a Section 1031 exchange! An individual who contemplates a Section 1031 exchange should question and understand what is going to happen to his or her money during the exchange.

In my opinion, the foremost obligation of the Qualified Intermediary during a Section 1031 exchange is to protect his clients' funds while the funds are in the care of the Qualified Intermediary. The client should fully understand exactly how his funds are to be held and what protections will be utilized for the protection of those funds. Liquidity of exchange funds is another extremely important consideration.

Strictly Segregated Accounts

The client in a Section 1031 exchange should confirm that the Qualified Intermediary will establish a separate, segregated account for his or her exchange. Funds should not be placed in an account that commingles funds with other exchange clients or the Qualified Intermediary's operating funds. Is it possible to view the exchange account online? Ask the Qualified Intermediary about that. It is also very important to verify language in the Exchange Agreement that establishes the separation of exchange funds from those of the Qualified Intermediary or the other clients of the Qualified Intermediary. A sample clause might read as follows:

"It is the intent of the parties that the money or other property held in the Exchange Account is to be used solely by the Qualified Intermediary for its obligations under this Agreement and shall not be deemed a part of Intermediary's general assets or subject to the claims of creditors of Intermediary."

Control of Funds

While the rules and regulations of Section 1031 require that the exchange client not "receive, pledge, borrow or otherwise obtain the benefits of the money or other property held in the Exchange Account" during the term of the exchange, there is a simple means by which the exchange client can avoid an unauthorized disbursement of funds by the Qualified Intermediary. With the bank's cooperation, a Personal Identification Number (PIN) can be established and known only to the bank and the exchange client. The bank would then require the exchange client to provide the PIN as an authorization for any disbursement of funds by the Qualified Intermediary.

Security of Funds

The changes to FDIC insurance have made the protection of a client's funds somewhat easier for the Qualified Intermediary in the past couple of years, but it is still an important issue. Make sure that exchange funds will be covered by FDIC insurance up to the limit of $250,000. If the exchange account will hold more than $250,000, the Qualified Intermediary may be able to offer full protection regardless of the amount if the client is willing to forego any interest earnings on the money during the exchange term. Given the low rate of return on money market funds currently, it is generally a no-brainer to opt for full FDIC insurance.

In conclusion, the exchange client should discuss all of the issues above with his or her Qualified Intermediary and reach a full understanding of what will be done with the funds during the entire Section 1031 exchange process.

(Photo credit: http://bit.ly/dUAn7h)

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2011 By Ken Tharp, All Rights Reserved. * What Could Possibly Go Wrong? * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

Have you ever thought about trying a Section 1031 as a DIY (Do It Yourself) project? If so, you might want to think again. Read on.

A couple in Arizona tried to do it themselves and paid a steep price as a result. They sold a piece of Arizona property for $76,000, took $10,000 of that as earnest money, and the balance was placed in an escrow account with a title company. The couple made any number of mistakes as they planned their DIY exchange. Among them, they neglected to state their intentions to enter into an exchange prior to their sale; their account with the title company did not expressly limit their right to receive, pledge, borrow, or otherwiseobtain the benefits of the cash held in the escrow account; and so on. 

The Tax Court wasn't terribly fond of the plan of this Arizona couple. Their tax basis in the property was quite low ($8,500), so there was a rather large gain that the couple sought to defer taxes on, but the Tax Court wouldn't play along. Justifiably so. The IRS makes the process of a 1031 exchange relatively clear, and anyone who employs a reputible, experienced qualified intermediary firm to handle the exchange should find it fairly easy to end up with an easily substantiated exchange. When a taxpayer attempts to do things outside of the safe harbors that the Internal Revenue Code sets out, the result is predictable -- failure.

In this case, the couple was required to recognize the gain of the sale of their Arizona property, resulting in tax of $14,475 plus penalty of $2,895 -- a total of $17,370 in an apparent attempt to avoid a fee from a reputible QI company. Ouch.

Don't make that mistake. Seek out an established intermediary with client references; one who belongs to and supports the association for the exchange industry, the Federation of Exchange Accommodators.

Image: nuttakit / FreeDigitalPhotos.net

(If you're into these sorts of things, here's the citation for the info on this case direct from the IRS.)

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2011 By Ken Tharp, All Rights Reserved. * DIY 1031 - Not So Fast * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

With the US tax code comprising so many thousands of pages and only getting larger, it's getting more and more difficult to keep up on what's happening. This article is intended to be a short overview of some of the latest actions and inactions by our lawmakers. It is also intended to be strictly a recitation of the facts; no political spin or opinion included.

Most recently, the 2010 Small Business Jobs Act ("SBJA") passed the Senate (9/16/10), the House (9/23/10), and was signed into law by President Obama (9/27/10). While its name might indicate otherwise, the law impacts large businesses and individuals in addition to small businesses. It extends some provisions and creates some new ones.

Some of the extensions:

• One of the extensions relates to the well-known Section 179 deduction. Formerly, the annual limit for this deduction was $250,000 and the deduction phased out when purchases exceeded $800,000. The SBJA extends the limit to $500,000, and phase out does not begin until purchases are greater than $2 million. This applies only to tax years 2010 and 2011. Logically, the extension should make it more attractive for businesses to invest in needed equipment in the remainder of 2010 and calendar year 2011. (The Section 179 deduction allows businesses to expense, or write off, the entire cost of eligible equipment up to the limit instead of having to depreciate it over its useful life.)
• Further, for the first time ever, certain types of real property can be included in the Section 179 deduction. There is a separate limit of $250,000 of the total $500,000 limit applied to real estate, and it is still subject to the phase-out over $2 million. Qualified expenditures include such things as qualified leasehold improvements, qualified restaurant property and qualified retail improvement property. (An interesting sidebar - this could have an impact on negotiations as to whether the landlord or the tenant completes property improvements.)
• General business credits may now be carried back five years; the carryback was previously only one year.
• Fifty percent bonus first-year depreciation has been extended for property placed in service during calendar year 2010 (with certain limited exceptions extending to 2011). This applies to property with a recovery period of seven years or less. It only applies to property being placed in service for the first time. 
• The infamous expansion of reporting requirements for payments of $600 or more to service providers is part of this act. For rental property owners, this includes such providers as plumbers, snow and mow companies, management, etc., and generally will require issuance of a Form 1099-MISC to all providers of $600 or more in such services during the calendar year. Increased penalties for non-compliance with this requirement are also a part of this act.

Next, we'll take a look at some of the impacts of Congress taking no action on particular aspects of tax law. Sometimes inaction creates consequences every bit as much as action does. This is one of those instances. There is still time for Congress to take action on some or all of these matters, but if nothing is done, the following things will revert to pre-Bush era law as of January 1, 2011:

• The tax rate on capital gains will go from its current 15% back to 20%.
• The tax rate on dividends will rise from 15% to one's ordinary income tax rate.
• The current marginal tax brackets of 28%, 33%, and 35% will rise to the pre-Bush-tax-cut rates of 31%, 36%, and 39.6% for ordinary income.
• The so-called "marriage penalty" will return for lower income couples.
• The child tax credit, the Hope education credit, and the earned income credit will all be reduced.
• After the 2010 Act described above expires, the Section 179 limit will drop back to $25,000. 
• The estate tax, after its one year hiatus during 2010, will come back at its old levels.

The health care legislation that was passed earlier this year contained a number of things that pertain to taxes:

• The legislation created several tax credits to help companies and individuals pay for health care legislation.
• There were also several penalties imposed to help government pay for the health care legislation.
• In addition, other revenue raisers were added to offset costs:
  • Higher medicare payroll tax on wages (an extra 0.9% for higher earners)
  • The Medicare payroll tax was extended to include investments:
    • There is a new 3.8% tax on investment income. (This would have the effect of creating a 23.8% capital gain rate for taxpayers to whom it applied.)
    • The 3.8% tax applies to adjusted gross income and investment income over $200,000 for single filers and income over $250,000 for married filing jointly.
    • It applies to net investment income after reductions due to related expenses.
  • It should be noted that most of these provisions do not take effect until 2013 or later.

There you have it--a summary of some of what I believe to be the most significant actions and inactions of the past year in relation to tax policy. I do want to give thanks to David E. Watson, CPA and Senior Partner of LWBJ Capital Advisors in West Des Moines, IA, for his excellent presentation at the Iowa Commercial Real Estate Expo on September 28, 2010, from which much of this material was gathered. Dave was kind enough to forward his presentation to me after the event for reference. If you have questions about any of this material, please let me know. Some of this stuff is very difficult to weed through and I don't claim to have any particular skill at it, but I'll do my best.

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2010 By Ken Tharp, All Rights Reserved. * Taxes - Where Do We Stand? * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

David had sold the farm that he had owned for many, many years and realized a capital gain of $800,000. With that money, he entered into a Section 1031 tax-deferred exchange with us and went out to find his new property. His intention was to find an apartment building that would provide a nice income.

What he found was a property that he could purchase for $650,000, which left him with $150,000 on which he would owe taxes to both the federal government and the state in which he lived. At that point, he considered trying to find another property such as a duplex or a nice single family home. After discussing the situation with us, we jointly reached a different conclusion. The property he had agreed to purchase for $650,000 could benefit from new windows, new siding, and a new roof, which would use up the remaining $150,000 in David's exchange account.

In order to include the improvements in the exchange, we set up an Exchange Accommodation Titleholder ("EAT") to hold title to the new property during the course of the improvements. An EAT is an LLC that exists for the sole purpose of holding title to such a property so that the closing that would transfer title to the exchanger (David, in this case) can be delayed. Once the improvements were completed, a closing to transfer title of the new property from the EAT to David was accomplished and David had successfully used all of his exchange funds in the new property.

The timing requirements of an exchange state that the entire exchange must be completed within 180 days. This requirement applies to an improvement exchange as well. The 180 days allowed starts from the date that the relinquished property closes, so in some cases this can create some complications. However, with proper advance planning, morphing your exchange into an improvement exchange can salvage the complete tax deferral that might otherwise not be available.

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2010 By Ken Tharp, All Rights Reserved. * An Exchange that Morphed into an Improvement Exchange * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

Mary and Michael had an unusual situation. They had a firm contract to sell their farm that was set to close on September 17 (we'll call this transaction "S17"), but they were also under contract to buy a farm with that closing set for July 26 ("J26"). A pretty clear-cut reverse exchange situation, but there was a wrinkle.

The price of S17, the farm they were selling, was $1.6 million, and the agreement on J26, the one they were buying, was only $700,000. They fully intended to purchase additional property to use up the remainder of the $1.6 million they would receive from their sale, but they hadn't found any strong prospects yet. What we discussed, and what Mary and Michael ultimately decided to do, was to structure a reverse exchange for the closing of J26. Then, when S17 closed, we would use $700,000 of the proceeds to wrap up the reverse portion of their exchange. The remaining $900,000 would go into an exchange account for a new forward (or standard) exchange.

One of the interesting things about combining a reverse and a forward exchange is that there are separate timing deadlines for the two exchanges. In this case, on September 17, the forward exchange started with a deadline to identify potential replacement properties 45 days later and a deadline to conclude the exchange 180 days after September 17. Mary and Michael used all of the time from when they first completed their exchange documents with us in early July to 45 days past September 17 to locate and put under contract three outstanding rental homes in Arizona, all of which closed well within the 180 day deadline. In this sort of combination reverse/forward exchange, if the deadlines were stretched to their limits it is possible to have as much as 360 days to complete an exchange!

The key to this or any other 1031 exchange transaction is proper advance planning. We offer consultation at no cost whatsoever, so please take advantage of that should you wish to investigate the pros and cons of any sort of Section 1031 exchange situation.

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2010 By Ken Tharp, All Rights Reserved. * Case Study Corner - Year-End Exchanges * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

Look out ahead, folks! Regardless of what you think of the health care "reform" that passed the House of Representatives yesterday (and I guess the quotes make it clear what I think of it), it will have a huge impact on those of us who call ourselves investors.

Within the thousands of pages of legislation, there is a small provision with a significant effect. It is a 3.8% "Medicare payroll tax" on capital gains and other investments. This increases the capital gain rate from its present 15% to 18.8%. **Please see 4/8/10 update at bottom.** Bad, but perhaps tolerable, you may think. However, in addition to this 3.8% surcharge, at the end of 2010 the capital gain rate is set to increase from 15% to 20% due to the expiration of the Bush tax cuts. Combined with the 3.8% Medicare boost, that results in a new capital gain tax rate starting January 1, 2011 of 23.8%! **Please see 4/8/10 update at bottom.** If you do the math, you'll see that this represents a almost a 60% increase in the capital gain rate versus the present 15%!

Today I have to tell you that if you were ever thinking of selling your investment real estate without using a 1031 exchange, now might be the time to do it. I don't believe that you will be able to avoid the 3.8% surcharge; that will likely go into effect as soon as President Obama signs the bill, which appears to be scheduled in the next day or two. **Please see 4/8/10 update at bottom.** But you can avoid the 5% increase that happens at the end of 2010 if you close prior to December 31, 2010. Of course, you can avoid paying all of those taxes today by utiliziing a Section 1031 exchange.

If you have questions, please feel free to get in touch. This is a fluid situation, so I won't claim to have all of the answers, but I'll do my best to find out for you.

**4/8/10 - I've been trying to get definitive word on when the 3.8% increase goes into effect without any luck until today. I broke down and read the bill itself for the information. (Not the entire 3,000 pages, mind you; just the pertinent section.) The increase takes effect on 1/1/2013, so it is not quite as onerous as I originally suspected. Some solice, I guess.

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2010 By Ken Tharp, All Rights Reserved. * Capital Gain Tax Increases Coming * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

This is the first in a planned series of case studies, where we take a look at specific exchange issues relative to a specific client. No real names, no real locations, no real property descriptions, but some good general knowledge. Hope you enjoy this new feature.

Joe called in the late fall of 2008. He was considering an exchange involving property he owned in Iowa. His concern was that he might not be able to find the specific type of replacement property he wanted. He was willing to take the hit from capital gain taxes if he couldn't find the right property, but of course he didn't really have a choice on that! We talked to him about the possibility of beginning an exchange and what would happen if he did not find a property he was happy with. Joe was in an enviable position, but could we convince him of that?

Because the closing on the sale of his relinquished property was scheduled for Dec. 1, his 45-day Identification Period would not end until the middle of January, 2009. His 180-day Exchange Period extended well into 2010 as well, of course. Therefore, if he began an exchange, he would have no access to his proceeds until sometime in 2009. What we explained to Joe was that those facts placed him in the position of controlling whether he reported his capital gain (assumed his exchange failed) during 2008 or 2009. As long as he made a diligent effort to complete his exchange, failure to complete it would allow him to choose to report the sale as an installment sale, with the proceeds not received until sometime in 2009. Alternately, and at his sole discretion, he could choose to report the gain in 2008 if it was to his benefit. If you recall, during the presidential campaign there was discussion of possibly raising the capital gain rate, and there was also discussion of possibly lowering the rate. With such uncertainty, the option of reporting in either 2008 or 2009 gave Joe the ability to conceivably wait clear until October 15, 2009 (assuming automatic filing extensions were done) to see whether the new congress and the new administration made any changes to the capital gain rate. We thought this was a brilliant strategy!

Alas, Joe elected not to pursue an exchange and was therefore subject to reporting in 2008. It all turned out fine for Joe since the capital gain rate did not change, but it still points out the value of the strategy. The situation arises every year in the late fall, though, so keep it in mind for future years.

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2010 By Ken Tharp, All Rights Reserved. * Case Study Corner - Year-End Exchanges * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

When it comes to related party issues, Section 1031 exchanges are no different than most of tax law - fraught with peril and rather confusing. Let's try to make some sense of it, shall we?

The crux of the matter when it comes to related party matter and 1031 exchanges is that the IRS is not a big fan of using a relative to establish a higher basis in a low basis property through an exchange. That is known as basis shifting, or basis swapping, and it is highly frowned upon. And they've taken steps to ferret out abusers - Form 8824, the form on which every 1031 exchange must be reported, contains a very specific question on Line 7: "Was the exchange of the property given up or received made with a related party, either directly or indirectly (such as through an intermediary)? If yes, complete Part II." Part II then requires you to disclose a number of facts about the transaction.

So who qualifies as a related party? Well, related parties include, but are not limited to, immediate family members. "Up and out," you might say: your siblings, your spouse, your ancestors and your descendants are all related parties. Some people who are not related parties to you are aunts and uncles, in-laws, cousins, nieces and nephews, ex-spouses and stepparents. Also, a corporation or other entity of which more than 50% of the ownership is owned by you is a related party.

Let's now break down what can and cannot be done within a 1031 exchange that involves related parties.We'll look at two distinct scenarios: 1) Sale of the relinquished property to a related party, and 2) Purchase of the replacement property from a related party.

Sale of the relinquished property to a related party: With some caveats, selling your relinquished property to a related party is A-OK. The major caveat is that both you and the related party must agree to hold the properties you acquire for a minimum of two years following the exchange. If you are confident that the related party you sell to will hold the property for those two years, and you are confident that you will hold the property you acquire from a non-related party for the same two years, then it is clear that this transaction is okay with the IRS.

Purchase of the replacement property from a related party: In most cases, you are not able to acquire your replacement property from a related party without running afoul of the IRS and facing the resulting tax liabilities. The primary exception to this ruling (which was set out in Rev. Proc. 2002-83, for anyone looking for a citation) is if the related party is also doing a 1031 exchange. The other exception is if you can establish to the satisfaction of the IRS that the transaction did not result in a basis swap, which would be quite difficult to do except in the most unusual of circumstances.

To conclude, be aware that exchange transactions that involve related parties must be well thought out and structured properly to withstand the scrutiny of the IRS. Please contact us early in the process if you are contemplating such an exchange so we can work together to create a solid platform for you.

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2010 By Ken Tharp, All Rights Reserved. * It's All Relative - Related Party Issues in 1031 Exchanges * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

According to the Associated Press, the best way to avoid an IRS audit is to earn less than $200,000. Tax returns showing less than $200,000 go unaudited 99 percent of the time, according to the AP report.

For those with income above $200,000, there is a 3 percent chance of audit. Earnings of $1 million or more are audited 6 percent of the time. These percentages apply to both single filers and joint returns.

Another bonus for those under $200,000 in adjusted gross income is that the number of audits for that category remained constant from 2008 to 2009. On the other hand, the numbers of audits rose 11 percent for those with more than $200,000 in income, and 30 percent for returns showing $1 million or more in income.

According to the AP report, the IRS conducted a total of 1.4 million individual return audits durng the financial year ending September 30, 2009.

Although not mentioned in the AP report, it is widely thought in the 1031 exchange industry that participating in an exchange is not in itself any sort of red flag or trigger for additional scrutiny.

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2009 By Ken Tharp, All Rights Reserved. * IRS Audits - How to Avoid Them * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.

Iowa State University economist Michael Duffy reports that average farmland prices dipped 2% over the course of 2009, the first decline since 1999. The primary culprit for the decrease was a drop in corn, soybean and livestock prices, according to Duffy. The average value of an acre of Iowa farmland decreased to $4,371 during 2009 from $4,468 in 2008.

During the near-decade of land value increases, the average value of an acre of farmland rose 145 percent. (See chart from the Des Moines Register below.)

Although the average price of farmland did decrease during 2009, not all areas of the state were so affected. Northwest Iowa, northeast Iowa, and some counties in east and southeast Iowa saw slight increases in values. Allamakee County in the very northeastern corner of the state registered the greatest jump in value, up 5.7% over 2008.

Overall average land values on a county-by-county basis ranged from a low of $1,957 per acre in southern Iowa's Decatur county to a high of $6,153 in northwest Iowa's O'Brien county.

There is close to a consensus that values have stabilized and may be trending higher again. Most of the decline is attributable to events early in 2009, and prices seem to have resumed a slow upward march in the last half of the year.

According to the Duffy's survey results, which were the basis for these conclusions on land values, 72 percent of land sales in 2009 were to existing farmers, primarily neighbors. Twenty-three percent of sales were to investors, and four percent were to new farmers. Duffy also mentioned that the investor category of buyers consisted primarily of Iowans "who are familiar with farming and want to add to their holdings. There isn't too much evidence of three-piece-suit, Wall Street types among farmland investors," he said.

(As an ironic aside, we received a phone call from a gentleman calling from the heart of Manhattan last week who asked us about investing in farmland. We have since determined that the call was bonafide, although it is unknown at this time whether the caller will actually end up an owner of Iowa farmland.)

Our conclusions about this report? We think we'll go along with what Randy Hertz of Hertz Farm Management said. "Farmland is still the best investment you can make." It's hard to argue with him on that.

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

800-805-1031 toll free

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

INTEGRITY. PRECISION. SECURITY.

Copyright © 2009 By Ken Tharp, All Rights Reserved. * Iowa Land Prices Decline; First Time in Nine Years * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.