Capital Gains Tax on Farmland
Selling or transferring farmland triggers capital gains tax, but qualified farm property may be eligible for the Lifetime Capital Gains Exemption of up to $1.25 million.
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Key Takeaways
- Selling farmland can trigger significant capital gains
- Lifetime Capital Gains Exemption of $1.25M for qualified farm property
- Farm property must meet specific ownership tests
- Principal residence exemption may also apply to farm home
Capital Gains on Farmland
When you sell farmland for more than you paid, the profit is a capital gain. Only 50% of capital gains are taxable, and additional exemptions may apply.
Lifetime Capital Gains Exemption (LCGE)
Qualified farm property may be eligible for up to $1.25 million in tax-free capital gains per person.
Qualifying Conditions
- Property was used principally in farming by you, spouse, or family
- Gross farming income exceeded other income in at least 2 of last 5 years
- Property was owned for at least 24 months before sale
- Corporation or partnership must be a "qualified" entity
Alternative Minimum Tax
Large LCGE claims may trigger AMT, requiring careful tax planning.
Principal Residence Portion
If your home is on the farm property, you may also claim the principal residence exemption on up to 1/2 hectare (approximately 1.2 acres).
Selling Farm Property?
Tax Punjabi can help you maximize exemptions and minimize capital gains tax.