An Update on Not Owning Farmland in an IRA

Yesterday we did a post on why it is not good to own farmland in an IRA.  A couple of readers provided some additional guidance that we should mention.

Any income inside of an IRA is considered to be ordinary income when the distribution is made to the owner.  Farmland sold outside of an IRA will qualify for capital gain treatment if held at least an year before it is sold.

Also, any farmland own and passed through an estate will get a step-up in basis which will allow the heirs to sell the land tax-free (other than any other future appreciation).

A farmer could own farmland in a ROTH IRA which will be tax-free, however, as mentioned in our post yesterday, this is still not recommended due to the issues with prohibited transactions.