When an UPREIT Might Make Sense

Many farmers have seen substantial appreciation in their farmland values over the last decade.  Many of these farmers are approaching retirement age and would like to “cash” in on these values and diversify their holdings.  They do not have any children to take over the farm and are worried that values in their immediate area may see a substantial drop over the next few years or would like to geographically diversify their holdings.

One option to consider is to use a Section 1031 exchange on their farmland into an UPREIT.  There are several UPREITS that are investing in farmland over a broad geographical area and others that are invested strictly in commercial properties.  The possible appeal to a farmer selling their land is the deferral of their income tax and more broadly diversifying their risk.  The UPREIT essentially trades units for the farmers land.  In return, any income from the UPREIT is allocated to the farmer based on their ownership %.

In order to take advantage of these vehicles, you must find the appropriate UPREIT to approach to see if they are interested in purchasing your farmland.  If so, then the transaction can be structured in a tax-efficient manner.  Most UPREITS allow the farmer to cash in their shares at a later point in time.  One drawback to these vehicles is that the farmer is no longer in control.

If this might appeal to you, you need to discuss this with your tax advisor.  These are not common as a regular 1031 exchange, but are very much a viable option.

Paul Neiffer, CPA

  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives a combine each summer for his cousins and that is what he considers a vacation.

Comments are closed.

Subscribe to Our Email List

* indicates required