Before You Talk to a Buyer: A Pre-Sale Tax Strategy Checklist for Landowners

There’s one rule about land sale tax planning that does not change. The decisions that move the most tax dollars get made in the year before the sale, not at the closing table.

Most landowners discover this the hard way. They list the property, accept an offer, and sit down with their CPA 30 days before closing to ask, “What can we do about the tax?” By then, half the tools are already off the table.

Here’s the checklist we walk every landowner family through 12 to 18 months out, in the order it should happen.

Step one: Get the projection

Before any other decision can be made, you need to know what the tax bill looks like with no planning.

Your CPA can run a pre-sale tax projection. It models out, in your specific situation, what you would owe if you sold today.

A complete projection covers:

• Federal capital gains on the appreciation of the real estate
• State capital gains, which range from zero in Texas, Wyoming, and Florida to over 13 percent in California
• Section 1250 depreciation recapture on the real estate (taxed at up to 25 percent federal)
• Section 1245 depreciation recapture on equipment, livestock, and stored grain (taxed at ordinary income rates, sometimes 24 to 37 percent federal)
• Net Investment Income Tax of 3.8 percent if your modified adjusted gross income exceeds the threshold (currently $250,000 jointly, $200,000 single)

Add it up. The number you get is what you are starting from. Every other decision in the checklist either reduces that number or doesn’t.

Most landowners are shocked by the projection. They assumed the tax was 15 percent. The reality is closer to 30 to 40 percent on a typical ranch or farm sale. Knowing the real number changes the rest of the conversation.

Step two: Audit your entity structure

The way the property is currently titled has tax implications. Some structures restrict your options. Others enable strategies that wouldn’t otherwise be available.

Common structures we see:

• Direct individual or joint ownership. Simplest. All the standard 1031 and stepped-up-basis tools apply.
• Revocable living trust. Functionally equivalent to direct ownership for tax purposes during life, with the inheritance benefit at death.
• Single-member LLC. Treated as a disregarded entity for tax purposes, behaves like direct ownership for 1031.
• Multi-member LLC or partnership. More complex. The members of an LLC can each elect different paths at sale (some can 1031, others can take cash) only if the structure is set up to allow drop-and-swap or split treatments. This often needs restructuring before the sale.
• C-corporation. Worst structure for landowner real estate at sale. Subject to corporate tax on the gain plus dividend tax on distribution. If the land is held in a C-corp, restructuring well in advance of sale is usually necessary.

Your estate planning attorney needs to look at the current structure and tell you whether anything should change before the sale closes. Restructuring takes time and often has its own tax implications, which is why this conversation needs to happen at the start of the planning year, not the end.

Step three: Plan for the personal property side

A 1031 exchange handles real estate. It does not handle equipment, livestock, vehicles, irrigation pivots, or stored grain.

If you are an active operator transitioning out, the personal property side of your operation can produce a tax bill larger than the land itself. The Section 1245 depreciation recapture on a fully depreciated combine, for example, can be 30 to 50 percent of the sale price.

Tools to consider for personal property:

• Charitable Remainder Trust (CRT). A tax-exempt entity. Highly appreciated equipment, livestock, or stored grain transferred to a CRT before sale gets sold inside the trust without immediate tax. You receive a stream of income for life or a set number of years. Remaining assets go to charity at the end of the term.
• Structured installment sale. Spread the sale across two or more tax years. Useful when the personal property gain pushes you into the highest brackets in a single year.
• Strategic timing. Selling some equipment in the year before the land sale, and other categories the year of, can keep ordinary income from stacking on top of capital gains in a single tax year.

Your CPA models which of these saves the most in your situation. The numbers can be significant.

Step four: Map out replacement property options

If you intend to do a 1031, the replacement property strategy needs to be in motion before the sale goes under contract.

You have 45 days from the sale closing to formally identify replacement property, and 180 days to close on it. With off-market ranches, raw land, or specific commercial property, the timeline is tight. Many landowners run out of identification options inside the window.

Delaware Statutory Trusts work as a defensive structure here. DSTs are pre-vetted, ready-to-fund replacement property. We can have multiple DST options identified before the land sale closes, so the identification window becomes a formality rather than a scramble.

Even if you intend to roll into a specific ranch or building, having DSTs identified as backup gives you a safety net. If the ranch deal falls through at the last minute, you still meet the IRS rules and avoid the tax bill.

Step five: Engage the Qualified Intermediary

A 1031 exchange has to flow through a Qualified Intermediary. The QI is a neutral third party that holds the proceeds between the sale and the replacement closing. You cannot serve as your own QI, and your attorney, CPA, or financial advisor are barred from the role under the disqualified person rule.

Engage the QI 30 to 60 days before the sale closes. The QI provides exchange instructions to the closing attorney, holds the proceeds in a segregated escrow account, and wires them to the replacement closing within the IRS timeline.

What to look for in a QI: bonded, insured, segregated client funds, long operating history, written exchange agreement that complies with current IRS guidance.

Step six: Coordinate the team before the sale

By the time you sign a listing agreement, the planning team should be aligned. Each person handles their piece:

• CPA. Owns the tax projection and the personal property strategy.
• Estate planning attorney. Owns the entity structure, titling, and inheritance plan.
• 1031 advisor. Owns the replacement property strategy and coordinates the QI.
• Land broker. Owns the sale itself, the listing, the negotiation, and the closing.

These four pieces touch each other. The 1031 advisor needs the CPA’s projection to size the replacement allocation. The attorney needs the broker’s anticipated timeline to plan any entity restructuring. The CPA needs the QI’s exchange instructions to file Form 8824 correctly.

If the four are not coordinating before the sale, the plan happens by accident, not by design.

Step seven: Build in the post-sale plan

The day after closing matters too. Your post-sale picture should include:

• The DST or replacement property generating potential mailbox money
• A revised income tax projection for the new structure
• An updated estate plan reflecting the new asset mix
• Coordination with your insurance and beneficiary designations
• A schedule for the next exit cycle (DSTs typically sell in 5 to 10 years; you’ll want to know what the next decision looks like)

A land sale is a one-time event. The wealth structure that follows it is meant to last decades.

The risks to acknowledge up front

Tax planning reduces tax exposure. It does not eliminate market risk. A DST defers tax but is illiquid, accredited-investor-only, and subject to real estate market performance. A CRT commits the asset to charity after the income term. A structured installment sale carries the buyer’s credit risk over the life of the installment. Each tool has its trade-offs.

We tell every landowner family the same thing. We won’t promise you a number. We will tell you straight what each tool does and what it costs. The pre-sale checklist is how we make sure the math is right before the contract gets signed.

The big picture

The most expensive tax mistakes happen in the months before a sale, not the days after. Get the projection. Audit the structure. Plan the personal property. Map the replacement. Engage the QI. Coordinate the team.

That’s the checklist. The visit is how we walk through it together.