Looking to sell your ranch yet have no idea where to start? Here are five questions you should ask yourself to plan your sale effectively:
1. How should I market my ranch?
Putting up a ‘For Sale’ sign in front of your ranch is the first step. While this may seem obvious, it is easily forgotten in the age of internet marketing. That single glance form a passing driver could be your sale.
Next, you need to get online . You could either find a property/business listings website to feature your ranch or create your own page, which you could tie in with buying ad space. Google Adwords can provide ad space for as little as $1 a day, but you can set your advertising budget to as much as you want.
Good quality photos of your ranch - whether they are on internet pages or within a brochure or leaflet are worth spending money on. Not only will they increase the interest in your ranch, but not having them or having bad ones will likely result in less viewings.
Being flexible with your ranch viewings is a necessity. Not doing so will inevitably decrease the amount of potential buyers. Perhaps provide a lockbox outside the property so that agents can pick up the key and show people around while you’re not there.
Provide your agent with an incentive to sell within four weeks . Giving your agent a goal will encourge them to sell, while also providing you with an insight as to whether you’ve chosen the right person for the job. If not, it’ll give you the chance to look for someone else.
2. What should I look for in an estate agent or business broker and what should I know about the negotiation process?
You should look for an estate agent/ business broker who has had extensive experience in selling ranches. This will ensure that they are likely to know many clients who’d be interested in purchasing a ranch, as well as the specifics of this type of sale
During the negotiation process your agent should: explain how release clauses and contingencies work, prevent you from signing a ‘blank check’ for requested repairs, review contract and obligations before you sign and define legal disclosure requirements.
3. What taxes will I have to pay in selling my ranch?
The types of assets you have will determine the tax rates you’ll incur in selling your ranch. This means that you should definitely seek direction from tax advisors during the period of price negotiation.
There are five ways in which investors may be taxed upon sale:
- Depreciation Recapture : This is to do with ‘depreciable assets,’ which entail equipment and anything tangible that can be considered a business asset and maintain some value – tractors, for example. This would not include supplies as they will be used within a year (i.e. feed) and so can’t be depreciated. Any gain from as such must be reported as income and will then be taxed at a rate of 25%.
- Federal Ordinary Income Tax : This is entirely dependable on taxable income, from which you can be taxed at rates up to 39.6%.
- State Taxes : Simply, the applicable state tax to where you’re selling.
- Medicare Surtax : The change to The Health Care and Education Reconciliation Act of 2010 meant that a 3.8% Medicare Surtax was added. This is applicable to taxpayers with ‘net investment income’ and also exceed single filer’s $200,000 threshold income and joint filing married couple’s $250,000.
- Federal Capital Gains Tax : This is owed by investors at rates of either 15% or 20% on any economic gain from the ranch. Whether it is the former or the latter is dependent upon taxable income.
Other aspects that may affect taxation include:
- Ranch estate comprised of multiple separately deeded parcels : Ranches are often comprised of separate deeded parcels, which vary in cost. This usually occurs through either inheritance, or in attempting to expand the ranch.
- The ownership of a ranch inside an entity : The way your ranch is owned can have an impact on the planning options and tax treatments that you’ll be allowed. Such ownership structures can include: Partnership/ Limited Liability Company, Subchapter S Corporation or General Corporation.
4. How can I alleviate the cost of taxes when I sell?
As mentioned above, ranches that are highly appreciated or depreciated can come with a large tax bill. However there are tools that you can use to help bypass or delay such tax:
- Charitable Remainder Trust (Section 664) : This is a trust comprised of two parts: the income interest (income paid to individuals who established the trust) and the remainder interest (money remaining in the Charitable Remainder Trust when the trust terminates). Qualified organizations, such as family foundations, are given the remained interest by way of the donor’s choice shown within the trust document. For further information, take note of the Charitable Trust website . This trust acts as a tax avoidance tool by allowing the ranch seller to either delay or completely avert capital gains tax on the sale of appreciated real estate.The trust can further be used towards the avoidance of tax on depreciated assets, such as machinery and livestock.
Tax-Deferred Exchange (Section 1031): An exchange where the capital gains tax on the sale of the ranch won’t be recognised when a taxpayer sells up and purchases another. The tax code states: ‘No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment purposes if such property is exchanged solely for property of a like-kind which is to be held for either productive use in trade or business or for investment purposes.’
5. What happens during the finalisation of the sale?
When you accept an offer, the agent should take care of most of the details (except the tax upon sale). This will mainly include keeping in contact with the buyer’s agent, making checks on the loan of a buyer and following contingency removal deadlines.
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