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University of Minnesota Extension

Should you sell your real estate?

Quick facts

  • Real estate assets may consist of land, buildings and a house. 
  • When entering retirement, farmers choose to either keep or sell their land for different reasons.
  • Selling real estate should be done thoughtfully as there are tax implications.

For the senior generation, real estate is usually a major portion of their assets. Disposing of real estate assets is usually a major decision. Of all the real estate assets mentioned, land is usually the most valuable.

Why farmers may choose to keep land

Many farmers choose to retain ownership of most of their land into retirement. They do so for several reasons:

  • Ownership can provide a fairly secure annual income throughout one’s retirement years if it is rented to another operator.
    • Most farmers prefer a simply cash rental contract rather than share renting their land. Share renting is more risky, income is unknown and shared expenses must be paid. The landowner has to also assume responsibility for storage and marketing of their share of the crop produced. Cash rent provides a known income with less risk.
  • Land ownership can be viewed as an inflation hedge and can nearly always be liquidated to willing buyers.
  • Holding low basis land until death, with heirs receiving a stepped-up basis, can save many thousands of dollars of capital gains tax, especially if it is later sold by the heirs.
  • Land is sometimes viewed as security and can be a valuable part of a diversified array of retirement assets which may also include stocks, bonds, savings and retirement plans.

Why farmers may choose to sell land

Some farmers choose to sell their land at retirement. Some of the reasons they give are:

  • They want it to go to the farming children. They guarantee it will go to them by selling it to them.
  • They don’t want to be faced with the inconvenience of dealing with rental contracts including establishing and collecting rents, repair and maintenance, and the liability exposure.
  • Some are fearful that land values (rents) will fall and real estate taxes will increase, leaving them with less and less income. Others fear land values will rise and increase their estate taxes.
  • They feel they can get a better rate of return on their money if they invest it elsewhere.

Selling real estate


Medicare surtax

Effective January 1, 2013 a federal Medicare surtax was initiated as part of the Affordable Care Act of 2010. One part applies to a 0.9 percent increase in Medicare tax (total 3.8 percent) on active income. The second part applies to a 3.8 percent surtax on passive income. These new surtaxes apply only to income levels over a given threshold: $250,000 married filing jointly, $125,000 filing separately, $200,000 single, $200,000 head of household and $13,050 trusts and estates.

Active income applies to income generated from a trade or business activity. If actively farming this might affect you. There are material participation rules that need to be met each year. If you rent or sell assets the 3.8 percent might affect you. However, there are exceptions for farmers who are selling assets: if you materially participated in the farm operation five years in the eight-year period before drawing Social Security, you are exempt.

Any of these strategies can be complicated and may change due to legislative action. Check with your accountant and attorney for information specific to your situation. Tax laws change frequently!

Caution: This publication is offered as educational information. It does not offer legal advice. If you have questions on this information, contact an attorney.

David Bau and C. Robert Holcomb, Extension educators; Gary Hachfeld

Reviewed in 2023

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