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Rec. Property tax implications

HawkeyeStateHogs

HawkeyeStateHogs

Member
I wasn't really sure how to title this post. Does anyone know the ins and outs of owning a recreational property and purchasing items for it, (ie. gate, fence, UTV, etc.) and being able to write them off as farm use. What is required to do this if you're not actually a farmer?
 
I posted a link in another thread yesterday that says Linn County has expectations that you intend to turn an ag profit if you claim ag tax status. I’m sure there are plenty out there working the system. If you aren’t ag, you could retain receipts as improvements to lower your capital gains at sale, but A) you need to sell, B) improvements probably limit what you can itemize (doubt the ATV will fit). I’m by no means a tax expert, so take my view at face value.


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I will just go by what my accountants have allowed; do you have income from the property? If so, offset, improvements such as fence, mowing CRP, maintenance, taxes, insurance. I get to write off trips to Iowa (mileage). I might be missing something....

Oh yes, interest on your loan if you have one.
 
Thousands of things to discuss on this topic.

If you have a piece of property that is strictly recreational that means you most likely lack farm income. In this scenario, little, if anything, is tax deductible, sales tax exempt, etc.

If you have farm income, then you should be filing a schedule F with your taxes. Various forms of farm income can include row cropping, CRP, cash rents, cooperation payments, timber harvest, etc and all sorts of combinations thereof.

Fences/gates/etc are TYPICALLY (not always) considered real property improvements. They go against your basis, but are not tax deductible AND you have to pay sales tax for them when you go buy them. Basis=price you paid for farm + real improvements. This comes into play for capital gains if and when you sell it. Where this gets grey is if there is cost to maintain above, then it is tax deductible for the year. So adding a new fence=real improvement. Repair existing fence= maintenance.

If you file a schedule F and are actually using UTV for farm use you get two benefits. One: You don’t pay sales tax on purchase. Two: You can depreciate the machine as an asset. If you are just a recreational guy using it to check cameras, treestands, etc neither apply.

Property taxes… there appears to be inconsistencies from county to county. I've owned farms in 3 counties… in all cases anything over 10 acres was automatically ag and was taxed as such. This is regardless of land composition. Timber/crop/ whatever.

Property taxes part 2: If talking strictly rec ground with timber…. Look at putting into timber reserve. Your taxes go to ZERO.
 
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JNRBRONC said:
I posted a link in another thread yesterday that says Linn County has expectations that you intend to turn an ag profit if you claim ag tax status. I’m sure there are plenty out there working the system. If you aren’t ag, you could retain receipts as improvements to lower your capital gains at sale, but A) you need to sell, B) improvements probably limit what you can itemize (doubt the ATV will fit). I’m by no means a tax expert, so take my view at face value.


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Wonder what Linn county would say to the guy with a big patch of timber that is managing it for future timber harvest. Timber harvest proceeds go on a schedule F.
 
IowaBowHunter1983 said:
Wonder what Linn county would say to the guy with a big patch of timber that is managing it for future timber harvest. Timber harvest proceeds go on a schedule F.
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I think they did mention something about timber. Since people seem to only occasionally log, spread the revenue over multiple years?


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I'm currently going through an irs audit. You can only write off expenses on the income producing part of the property. All expenses including interest, taxes, improvements etc. Need to be split out for the non income producing part of the property.
If you do a timber harvest, you will be able to write off the expenses associated with that but you can only take those deductions on the year that you receive income. This would include interest etc.
 
You will pay income on the property when you sell, most likely in capital gains. You can write off expenses to maintain and take care of it until then. Your income when you sell will most likely exceed the lifetime of expenses.
 
mplane72 said:
You need to talk to a expert. I suspect that the reason you see a lot of property's owned by an LLC or other such designation.
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Probably a more salient reason why you see LLC's for land ownership is to shield the property from potential lawsuits, etc. If I as an individual own an asset and then get sued separately(because of a car accident where I personally injured someone and an award exceeds whatever insurance, someone gets hurt at a property that I own and the claim exceeds the applicable insurance, etc, fill in the blank)...then if the asset is not a piece of personal property, but instead a component of a separate corporation, then it is protected from seizure, etc.

There are other reasons too, but that is a key one.
 
Daver said:
Probably a more salient reason why you see LLC's for land ownership is to shield the property from potential lawsuits, etc. If I as an individual own an asset and then get sued separately(because of a car accident where I personally injured someone and an award exceeds whatever insurance, someone gets hurt at a property that I own and the claim exceeds the applicable insurance, etc, fill in the blank)...then if the asset is not a piece of personal property, but instead a component of a separate corporation, then it is protected from seizure, etc.

There are other reasons too, but that is a key one.
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This. LLC cheapest form of insurance ever invented. Back when I was buying houses lot of the deals were new LLCs. It's also a good way to divide up interest if buying or doing business with other people
It's also somewhat of a decent way to stay anonymous if that is a concern. That's not bullet proof if a person digs deep enough but helps.
 
150 Class said:
You will pay income on the property when you sell, most likely in capital gains. You can write off expenses to maintain and take care of it until then. Your income when you sell will most likely exceed the lifetime of expenses.
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You can do anything you want until you get audited. I can promise you that the IRS does not agree with your statement. You cannot write off expenses for anything unless it has provided income in that year.
I always thought that when you bought a property that the entire property was looked at as a whole as far as the expenses/ income it produces. The reality is you can only write off expenses on the income producing acres, and obviously those expenses need to be directly related to the income.
 
hillrunner said:
You can do anything you want until you get audited. I can promise you that the IRS does not agree with your statement. You cannot write off expenses for anything unless it has provided income in that year.
I always thought that when you bought a property that the entire property was looked at as a whole as far as the expenses/ income it produces. The reality is you can only write off expenses on the income producing acres, and obviously those expenses need to be directly related to the income.
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Some guys pasture a small part of their farm and then can write off expenses, and get lower property taxes in some states.

Example—Fred (our neighbor)rents small part of my farm timber for pasture. How would the IRS know if I did fencing improvements on the pasture/Timber or on the non-pasture area?

I doubt they would drive to the land to verify??
 
They'll look at dollars earned vs expenses. They are not going to let you deduct $10,000 in expenses every year for $500 income. And yea, the IRS agent did drive by both my home place and business to verify some things. I do not know if they drove to the Monona county farm.
Like I said, you can get away with anything as long as you're never audited. Being audited by the IRS is a huge eye opener . There are a lot of people unknowingly doing things at tax time that would never pass an audit. My suggestion, pray you never get audited.
 
Daver said:
Probably a more salient reason why you see LLC's for land ownership is to shield the property from potential lawsuits, etc. If I as an individual own an asset and then get sued separately(because of a car accident where I personally injured someone and an award exceeds whatever insurance, someone gets hurt at a property that I own and the claim exceeds the applicable insurance, etc, fill in the blank)...then if the asset is not a piece of personal property, but instead a component of a separate corporation, then it is protected from seizure, etc.

There are other reasons too, but that is a key one.
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I am aware of that and agree on all points. Also, I know that a lot of people look at it as they're now a "business" and can now write off everything they buy. As we can see it's really a bit more complicated then that but most won't ever have an issue.

The angle I've been waiting to see is set up a guide business that owns the farm and pays themselves to guide themselves.;) Write off everything like stands, foot plot seed and the tractor. Pay your wife and kids as "farm hands". Official business attire is Sitka.
 
I do know if you have CRP you can write off the maintenance as it is required by the government/contract. Mowing/burning/discing/implementation and that should include some equipment, gas, travel time...etc.

If they challenged anyone on that, I would be surprised.
 
I just dealt with this on my small acreage in Linn Co. I rent 7 acres of pasture out and they were saying the income off of that wasn't enough to justify it as Ag. Literally WTH. But there are a couple of acres of walnut trees on the property and the future value of those was enough to get them accept it as ag.

As far as LLC's owning property it's for liability and income generated by the LLC is passive which is beneficial on taxes.

As far as deducting stuff on a recreational property, you better strike recreational from your vocabulary when referring to it (wink, wink). If you're not trying to make a profit from the property, then you can't deduct stuff. If you do deduct stuff, just be prepared to provide an explanation to the IRS as to how your deduction is related to earning income.

That's my $.02 for what it's worth. Like others have said, definitely talk to a good accountant.
 
ArrowheadMuzzleloader said:
I just dealt with this on my small acreage in Linn Co. I rent 7 acres of pasture out and they were saying the income off of that wasn't enough to justify it as Ag. Literally WTH. But there are a couple of acres of walnut trees on the property and the future value of those was enough to get them accept it as ag.

As far as LLC's owning property it's for liability and income generated by the LLC is passive which is beneficial on taxes.

As far as deducting stuff on a recreational property, you better strike recreational from your vocabulary when referring to it (wink, wink). If you're not trying to make a profit from the property, then you can't deduct stuff. If you do deduct stuff, just be prepared to provide an explanation to the IRS as to how your deduction is related to earning income.

That's my $.02 for what it's worth. Like others have said, definitely talk to a good accountant.
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Who is saying that?
 
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