Using Replacement Property To Defer Capital Gains On Farmland

With replacement property rules, you can purchase farmland to replace a previous piece of farmland sold – as long as it’s used in the same (or a similar) business – and elect to defer any capital gain that might be incurred. Replacement might occur for the following reasons:

(a) farmers swap land with neighbours due to proximity to their farm business
(b) land is expropriated by government bodies and farmers find replacement land to continue their operations
(c) succession planning

The replacement property rules allow farmers the potential ability to elect not to incur any tax at the time of disposition, deferring this until a later date and time when the newly acquired property is disposed of. If you are thinking about taking advantage of this opportunity, it is a good idea to first get acquainted with the rules.