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January 27, 2025 - Written By Geswein Farm & Land

Adapting to Change: Key Farmland 1031 Trends for 2025

As the farmland real estate market evolves in 2025, staying ahead of trends and partnering with trusted advisors can help farmland owners and investors optimize their balance sheets, portfolios, defer taxes, and achieve both financial and lifestyle goals. Below are some of the top methods and trends in 1031 exchange and why they make sense in 2025.

In 2025, farmland owners, farmers, and real estate investors are leveraging 1031 exchanges to navigate rising interest rates, maturing loans, and shifting asset preferences. From reverse exchanges to passive investments, understanding these trends can help maximize returns while deferring taxes.

Maturing Loans Drive Farmland Sales and Refinancing

 “The Sale/Leaseback” Makes a Strong Return?
A wave of maturing agricultural loans is expected to push many farmland owners to sell as they seek better financing terms or improved cash flow as markets and farm incomes are down. Utilizing a 1031 exchange allows sellers to defer capital gains taxes while reinvesting in farmland with higher ROI potential or more favorable loan terms. This can be a very strategic plan, particularly when a sale w/ leaseback is available to the farmer.

  • Shifting Interest Rates Could Impact Farmland Transaction Volume
    Should interest rates stabilize or decrease; farmland transaction volume is likely to increase. Lower borrowing costs make tillable farmland investments more attractive, particularly for institutional buyers and family farmers looking to expand their operations.

 

  • Reverse and Improvement Exchanges Enhance Flexibility for Farmland Investors
    In a market with fluctuating interest rates and limited quality farmland inventory, reverse and improvement (build-to-suit) exchanges are becoming more valuable. These strategies allow farmland investors to secure replacement properties before selling existing ones or improve the productivity of the land, such as installing drainage systems or irrigation, to maximize returns.

 

  • Seller Financing: A Growing Solution for Farmland Transactions

The challenges of securing traditional financing are prompting more farmland sellers to offer seller-financed deals. By incorporating 1031 exchanges into their strategy, sellers can defer taxes and reinvest the proceeds into new agricultural opportunities, whether it’s additional farmland or transitioning to other real estate investments. This is a unique scenario that continues to grow.

 

  • Shifting Interest in Farmland Asset Classes
    As farmland becomes increasingly viewed as a hedge against inflation, high-value tracts with productive soils, irrigation access, and proximity to grain markets are in strong demand. Farmland owners, farm families, and investors are using 1031 exchanges to shift their portfolios toward higher-performing, higher yielding agricultural properties.

 

  • Passive Farmland Investments Gain Popularity
    An increasing number of investors are transitioning from managing farms themselves to passive farmland investments, such as agricultural leases, partnerships, Charitable Remainder Trusts (CRTs) or Delaware Statutory Trusts (DSTs). These strategies allow investors to enjoy steady income from farmland while avoiding the complexities of day-to-day management.

 

  • Geographical Shifts in Farmland Ownership
    Local regulations and economic conditions are prompting investors to reallocate their farmland holdings. States with more farmer-friendly policies, lower taxes, and access to reliable infrastructure are attracting new buyers, especially in regions like the Midwest.

 

  • Growth in Farmland with Mixed-Use or Diversified Revenue
    Farmland with added income potential, such as incorporating solar leases, wind turbines, or agri-tourism, is becoming a prime target for 1031 exchanges. These properties allow investors to diversify revenue streams while enjoying the stability of owning productive farmland. Many landowners can often benefit from the hunting lease available on wooded acres or potential selective timbering of mature trees.

 

  • Retirement-Friendly Farmland Investments
    As more farmers,  non operating landowners approach retirement, many are looking to 1031 exchanges as a tool to transition into farmland or other real estate (rental homes, etc.) located in regions with lower costs of living, warmer climates, and favorable tax conditions. These areas also often provide opportunities to passively earn income from the land while enjoying retirement.

 

Key Takeaways for Farmland Owners & Land Investors in 2025:

  • Adaptation to Interest Rates: Monitor interest rate changes to identify optimal times for buying and selling farmland.
  • Leverage Passive Investments: Consider transitioning into agricultural leases or DSTs / CRT’s for steady returns.
  • Target High-Demand Asset Classes: Seek farmland with strong productivity, drainage, and access to markets.
  • Explore Seller Financing: As traditional financing tightens, explore seller-financed deals to maximize opportunities.
  • Diversify Revenue Streams: Consider looking into farmland with solar, wind, or mixed-use income opportunities such as hunting leases, CRP conservation payments or bonus depreciation options.