1031 Exchange on Vineyards
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Thanks to Steve Rosansky, a tax and 1031 exchange specialist attorney in Southern California, for bringing this to our attention. This post is more for my Central and Northern California readers.
Cost segregation can apply to many components in a vineyard and qualify for 10 year straight line depreciation. Although, this provides a nice tax advantage during the period of ownership, when the property is sold, the 25% depreciation recapture would apply creating a higher tax liability upon sale. Plus that 25% recapture is added to the current capital gains rate of 15%. One can imagine what would happen should the Democrats win everything in November 2012 and the capital gains rate goes to 30%.
By doing a 1031 exchange, however, the property owner can dispose of the vineyard and defer some or all of the capital gain and depreciation recapture taxes.
Can fee simple water rights also be exchanged? Water Rights
If there’s an owner occupied residence on the property, the residence portion may qualify for exclusion of the capital gain taxes per IRC Section 121. IRC Section 1031 only applies to property held for investment or used in a business. For more detail, see the attachment. 1031 Primary Residence Rules
Section 1031 also permits personal property held for in investment or used in a business to be exchange for ‘like kind’ personal property. Personal Property Rules
