Should I Sell My Farmland Now or Leave It to My Heirs? Pros and Cons Every Midwest Landowner Should Consider

For Many Landowners, This is the Big Question:

If you own or have inherited farmland in Iowa, Nebraska, Minnesota, or Illinois, chances are you’ve thought about what to do with it when you retire or inherit the land. Maybe you’re thinking about retirement, simplifying your estate, or wondering what your kids will do with the land. Maybe you are the beneficiary of land in a will or trust. Will your children or beneficiaries want to own it? Will it be a burden for them to manage? Are they well enough versed they won’t get taken advantage of? Would cash inheritance be a better option to save them the trouble? Is stepped-up basis worth the process of selling a farm while grieving? What is the right path forward in your own transition? There are a million questions we’ve been asked, and emotions we know our clients have faced and none of them are easy so lets talk a little bit.

A question we hear often is:

“Should I sell now, or leave the farm to my heirs?”

This is a deeply personal decision. The answer is different for everybody. The last statistic I saw said 37% of those who inherit Iowa farmland keep it simply for sentimental reasons alone. That says 63% do not hold onto the land, and most sell it within 3 years. By understanding your options and the current market, you can make a choice that supports your family and honors the legacy you’ve built.

If you have inherited the land, you likely want to ensure the legacy of the person who owned it. In some cases I have sold farms for people who owned farmland as the 6th generation, however were still 3 generations removed from farming. Often at that point many believe it is best to put the land in the hands of the current generation of land owners who can best care for an manage the land. I know its hard for them to do that, but that has always been the best option for them.

Additionally, as time goes on, each generation of family ownership grows. Where the farm once passed down to a few children, the next generation it tends to pass down to all of their children’s children and the next generation it’s even bigger. It is a fact, in most cases, it is very hard to own a fractional interest in real estate when there are many owners with different opinions and beliefs. As a farm real estate broker this is where I have seen the most conflict in clients I have sold farmland for. It is unfortunate, however it is real, I have seen farmland inheritances destroy some families. I find this to be one point, that despite capital gains taxes, may be worth maintaining peace in some families.

Option 2: Pass It to Your Heirs

Leaving the land in your estate can preserve family history and offer potential tax benefits.

Advantages of Passing It Down:

• Step-up in basis. Your heirs may avoid capital gains tax if they inherit the land and later sell it after your death. If they hold it for anytime, they will still pay capital gains taxes on the appreciation after your death. This is based on a date of death appraisal, where the farm is appraised on your death to set the base value of the farmland for taxation purposes.
• Legacy preservation. If your children or grandchildren plan to farm, passing the land down can support the next generation, like it did yours. This is a beautiful thing to see family farms survive and thrive. Often, this is the very key that allows farms to go multi-generational as real estate is the largest expense of farming and ownership is the limiting factor to growth and profitability. Owning debt free land also increases borrowing power.

Potential Downsides:

• Family disagreements. Not every heir wants to farm. Some may want to sell, others may not. Unequal interests often lead to conflict.
• Lack of planning. Without clear instructions in your estate plan, your family may face confusion, legal costs, or poor decisions.
• Market risks. If land prices decline in the future, your heirs may not benefit as much as you would from selling now.