Transferring farmland is one of the biggest decisions a farm family will ever make. Whether you're thinking about retirement, planning for succession, wanting to preserve the family legacy, or trying to be fair to all your kids, the path you choose will have real financial and tax consequences for years to come.

From outright sales to installment arrangements and gifting strategies, each option comes with its own pros and cons depending on what matters most to your family, your cash flow needs, and your long-term plans.

What are common farmland transfer options?

Outright Sale

An outright sale means selling your farmland at fair market value, usually all at once. You get immediate cash, but you'll likely face significant capital gains taxes on any appreciation. It's clean and straightforward, but it can put a financial strain on the next generation if they need financing to make it work.

Installment Sale

With an installment sale, the buyer makes payments over time. This creates a steady income for you while making it easier for your successor to afford. The tax bill also gets spread out over the payment period, which usually means better cash flow and tax efficiency for everyone involved.

Gifting Farmland

Gifting can be a smart estate planning move, especially when keeping the farm in the family is the priority. While gifts may be covered by the annual exclusion or lifetime exemption, you won't get any immediate income. Plus, the recipient typically inherits your original tax basis, which could mean a bigger capital gains hit down the road.

Farmland Transfer Methods

Tax & Financial Considerations

Capital Gains & Timing

When you transfer matters just as much as how you transfer. Market value, how long you've held the land, and depreciation recapture (if it applies) should all factor into your decision. If a sale results in a significant capital gain, Section 1062 may offer the ability to spread the resulting tax liability over four years, providing additional cash-flow flexibility during the transition.

Basis Implications

• Stepped-up basis (estate transfer) reduces future taxable gain
• Carryover basis (gifting) may create a higher tax liability later

Estate & Succession Integration

Farmland transfer shouldn't happen in a vacuum. It needs to fit with your bigger-picture estate plan, your will, any trusts, and your business succession strategy. This helps ensure everyone's treated fairly, the operation stays viable, and your legacy continues.

How do I choose the right approach?

There is no universal solution for farmland transfer. The best strategy balances:  

• What your family wants and when succession needs to happen
• How much income you'll need in retirement
• Your long-term estate planning goals

• Tax efficiency and how much risk you're comfortable with
  
  

Partner with Lutz to Protect Your Farm Operation

Transferring farmland is both an emotional and financial decision. Our tax services are specifically tailored for the agriculture industry. We work closely with farm families to evaluate transfer options, model tax outcomes, and design transition strategies that preserve your legacy. Contact us to learn more.