1 / 15

Sale of Development Rights: Tax Issues

Sale of Development Rights: Tax Issues. Dennis Pennington, MSUE Agriculture & Natural Resources Agent Barry County. What is PDR Program?. Landowner bundle of rights Right to develop Can be bought, sold, relinquished (voluntary) Enabled by P.A. 262 In Barry County:

talen
Download Presentation

Sale of Development Rights: Tax Issues

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Sale of Development Rights:Tax Issues Dennis Pennington, MSUE Agriculture & Natural Resources Agent Barry County

  2. What is PDR Program? • Landowner bundle of rights • Right to develop • Can be bought, sold, relinquished (voluntary) • Enabled by P.A. 262 • In Barry County: • Ordinance adopted December 2002 • Created CAPB to administer county PDR program

  3. Farmland Conversion • 355,942 total acres • 1982 = 188,096 acres • 1997 = 164,815 acres 23,281 acres • 12.4% decrease • ~ 1 township • 4.25 acres/day • 0 acres by 2103

  4. PDR Program-Barry County • Fall 2003 • 35 applications • 5,143 acres Questions • Capital gain • Estate planning

  5. Income vs. Capital Gain • Income tax paid on earned income (ordinary income) • Corn • Milk • Apples • Wages • Capital gain - from the sale of capital items • Tractor • Raised livestock • Real Estate

  6. Tax Bracket: Example 2Married Filing Jointly

  7. Example 2

  8. Basis Allocation Example • Example: • Purchased 100 A in 1990 for $300,000 • Basis allocated to: • Residence $100,000 • Farm Building #1 $40,000 • Timber $50,000 • Original purchase price = $300,000 • minus allocated items - $190,000 • Remaining Basis = $110,000 • Or $1,100 per acre

  9. Capital Gains • Under Revenue Ruling 77-414, gain from sale of Property Development Rights is subject to capital gains tax rates (see handout). • Capital gains rates as of May 6, 2003

  10. Example • Ordinary Income: $30,000 • Capital Gain: $60,000

  11. Deferred Like Kind Exchange • IRC 1031 • Proceeds held by qualified intermediary • Replacement property must be identified within 45 days of sale of development rights • Exchange of property must be within 180 days from the date of sale ~ gives you 135 days to close the deal on the new property

  12. Other Issues • Social Security • Capital gain reduces excludable amount • Donation of Development Rights • Estate Planning • Pass farmland to sibling wanting to farm • Pass development rights value to others • Sell for reduced $ before death? • Let property be inherited through will? • Basis?

  13. Social Security Issues • Schedule F Income 20,000 • Interest Income 4,000 • Social Security 16,000 • Total 40,000 • Excludable social security (16,000) • Total taxable income 24,000 • Ordinary Tax 2,885

  14. Social Security Issues • Schedule F Income 20,000 • Interest Income 4,000 • Sale of Development Rights 60,000 • Social Security 16,000 • Total 100,000 • Excludable social security (2,800) • Total taxable income 97,200 • Ordinary Tax 4,865

  15. Questions? Email: pennin34@msu.edu Web: msue.msu.edu/barry “Land Use”

More Related