Tax Strategies for Horse Property Sellers
Many, if not most of us, know about the capital gains savings that homeowners can benefit from when selling their primary residence. If the homeowner has occupied the residence for at least two of the previous five yeas, they can exclude up to $250,000 in capital gains from the profit of the sale for single persons or $500,000 for married persons. This does NOT mean that you must OWN the home for five years, just live in it for at least two of the previous five years. This also does NOT mean that the capital gain is on the SALE price, it is on the gain. Your tax accountant can help you determine your gain, but is roughly the selling price less the purchase price PLUS any improvements. There are many details to determining this and your accountant will be best positioned to do this with you.
Additional tax deferment is possible for investment properties via a 1031 Exchange is possible, under the right conditions. You are not exempted from the tax on the gains, but you can DEFER it to a later date when you may be in a lower tax bracket. The tax deferment, however, IS NOT available on your PRIMARY residence. Many married couples who have a significant gain, much larger than the $500,000 exclusion, are often reluctant to move even when they would like to as they do not want to pay the tax on the gain over $500,000. However, if you own a larger property where part of it is used for agricultural purposes or other income producing uses (see our blog on possible agricultural exemption for horse properties), IT IS POSSIBLE that the portion used as your primary home falls under the exemption and the portion used to produce income (as in breeding, boarding, etc.) could be seen as an income producing property and qualify for a 1031 Exchange. Quite possibly, if all the needed conditions are met, you can then use both tax saving strategies on your horse property. We are certified 1031 Exchange Agents and have an extremely qualified team to help assess your individual situation to see if your property qualifies.
Additionally, if you have breeding stock, they might ALSO qualify for a 1031 Exchange Deferment if you are selling and acquiring new stock. The one large caveat to this is that stallions can only be "exchanged" with stallions and mares with mares. As with the 1031 Exchanges of income property, you do not have to "swap" horses with the same owner, but rather sell one and buy a new one of equal or greater value. If certain specific conditions are met, you could defer the tax on the capital gain on the sale of the first one. Our team is here to help you see if any of these tax strategies will work for you. Don't hesitate to call or email!
Janie Coffey
Owner/Broker, GRI, TRC, QSC
cell: 786-252-4970
email: janie@papillonllc.com
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