Tax-deferred exchanges of farmland: theory and evidence from federal tax data

James M. Williamson; Michael P. Brady; Ron Durst

doi:10.1108/00021461011065256

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Agricultural Finance Review

ISSN: 0002-1466

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Subject Area: Economics

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Tax-deferred exchanges of farmland: theory and evidence from federal tax data

Document Information:
Title:	Tax-deferred exchanges of farmland: theory and evidence from federal tax data
Author(s):	James M. Williamson, (Economic Research Service, US Department of Agriculture, Washington, DC, USA), Michael P. Brady, (School of Economic Sciences and IMPACT Center, Washington State University, Pullman, Washington, USA), Ron Durst, (Economic Research Service, US Department of Agriculture, Washington, DC, USA)
Citation:	James M. Williamson, Michael P. Brady, Ron Durst, (2010) "Tax-deferred exchanges of farmland: theory and evidence from federal tax data", Agricultural Finance Review, Vol. 70 Iss: 2, pp.214 - 230
Keywords:	Farms, Land, Legislation, Rural areas, Taxes, United States of America
Article type:	Research paper
DOI:	10.1108/00021461011065256 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Acknowledgements:	The views expressed are those of the authors and do not necessarily correspond to the views or policies of the Economic Research Service or the US Department of Agriculture.
Abstract:	Purpose – The purpose of this paper is to examine the use of Section 1031 of the Internal Revenue Code (IRC), a piece of US tax law that allows for tax-deferred exchanges of like-kind property. Design/methodology/approach – The paper derives a theoretical premium value for exchanges and presents the first national level analysis of Federal tax data on the use of like-kind exchanges involving farmland between 1999 and 2005. Findings – There is significant interest in Section 1031 from stakeholders in rural communities because there is widespread belief that the recent growth in farmland values may have, in part, been stimulated by Section 1031 exchanges of farmland. Despite these concerns, little is known about the extent of such exchanges. Originality/value – This paper provides insight into the value and use of the IRC's Section 1031 provision. Based on simulations of a theoretical model using plausible assumptions about asset growth, the paper shows how proposed tax changes will affect the tax value of the deferral.