USDA 2007 Farm Bill Proposals - US Department of Agriculture

SECTION 1031 EXCHANGESRecommendation In BriefEliminate commodity program payments for all newly purchased land benefiting from a 1031 taxexchange.ProblemWhile many farmers are reporting significant economic hardship, land values have continued toclimb. Average farm real estate value increased over 90 percent from $974 per acre in 1998 to$1,900 per acre in 2006. During that same period, the average value of cropland increased almost80 percent to an average $2,390 per acre.High land values continue to be a barrier for new farmers who are seeking to enter productionagriculture. These high land values are also problematic for small and socially disadvantagedfarmers who are seeking to expand their operations.A reoccurring theme at USDA Farm Bill Forums centered on how individuals near urban areassold their land and moved to more remote areas where they outbid local farmers for farmland,simply to take advantage of the 1031 tax exchange. For example, Troy, a 26-year-old collegegraduate in agribusiness from Utah said, “It has always been my dream to be able to somedayown my own farm. Currently, I am unable to do so due to the giant barrier of entry which is landvalues….This is mainly due to speculation of real estate and 1031 exchanges.” Ronald fromMinnesota caused a round of applause when he stated “it's the 1031 tax exchange that's killingthe young farmer.” And Len from Wisconsin added, “The 1031 is just driving our land rents andland prices to where the average producer, even big producers can't compete.”USDA 2007 Farm Bill Proposals Page 24 of 183