You can realize a tax-free gain on the sale of your qualified farm property by applying the lifetime capital gains exemption to the proceeds, if you meet certain stringent criteria.
Combining Two Tax Breaks
Each individual with a stake in a farm has access to the lifetime capital gains exemption, so a common technique is to evaluate whether more than one exemption can be used in the same family.If so, you may be able to maximize the tax benefits of a property transfer within the family by combining rollover rules with the capital gains exemption. Ask your accountant for details.
The rules are complicated so we’ll first describe the basic qualifications. Qualified farm property includes:
Real or eligible capital property purchased after June 18, 1987, qualifies if the farm is run by you or:
In addition, one of the above parties must have owned the property for the 24 months preceding the sale. In addition, the property must have been used 50 per cent or more in a farming business for at least 24 months, and meet one of the following requirements:
Special rules apply if you bought or entered into an agreement to buy the real or eligible capital property before June 18, 1987. In that case, the property qualifies if any of the eligible people listed above, or a family farm partnership or corporation, or a personal trust that sold the property in the first place:
If you own farm property, consult with your accountant to see if you can use the lifetime capital gains exemption to get the best tax results.