Written by: Hinnerk Wolters, Broker
A 1031 exchange lets you sell Indiana farmland and buy replacement property of like-kind without paying capital gains tax in the year of the sale. The tax doesn’t disappear. It defers until you sell the replacement property in a taxable transaction. For farmland sellers who don’t want to write a six-figure check to the IRS in April, it’s one of the most useful tools in the code.
We’ve handled 1031 transactions across Indiana, Illinois, and Wisconsin. The mechanics aren’t complicated, but the deadlines are unforgiving, and the property identification rules trip people up more than anything else. We’ll walk through the whole sequence below.
What qualifies as a like-kind exchange
Indiana farmland qualifies as like-kind property under IRC Section 1031 as long as both the relinquished property and the replacement property are held for investment or for productive use in a trade or business. Tillable farmland, pasture, timber ground, recreational land with an ag component, and improved farms all qualify. Your personal residence does not.
The IRS published guidance in Publication 544 (2024) that clarifies the like-kind standard for real property after the 2017 Tax Cuts and Jobs Act narrowed Section 1031 to real estate only. According to IRS Publication 544 (2024 edition), “An exchange of real property held for productive use in a trade or business or for investment for real property of like kind generally qualifies for nonrecognition of gain or loss.”
That means a row-crop farm in Benton County can be exchanged for a cattle operation in Texas, a tree farm in Wisconsin, or a 1031-eligible commercial property anywhere in the United States. The properties don’t have to be the same kind of farm. They have to be real property held for investment or business use.
The 45-day and 180-day deadlines
This is where most 1031 exchanges fall apart. You have two hard deadlines from the day your relinquished property closes:
- 45 days to identify the replacement property in writing to your qualified intermediary.
- 180 days to close on the replacement property.
There are no extensions. The deadlines don’t pause for weekends, holidays, or hard-to-find replacement property. If you close on April 1, your identification is due May 16 and your replacement closes by September 28. Miss either deadline and the exchange fails. The sale becomes fully taxable in the year it closed.
We call the tenant first when we list a 1031 seller’s farm, and we start the replacement search in parallel with the listing. Waiting until after closing to start looking is how people end up with bad replacement property or a failed exchange.
The role of a qualified intermediary
You cannot touch the sale proceeds at any point during the exchange. If the funds hit your bank account, even briefly, the exchange is dead. The IRS requires a qualified intermediary, also called a QI or accommodator, to hold the proceeds between the sale and the replacement purchase.
The QI is a third party. Your attorney, CPA, real estate broker, or family member cannot serve as your QI because the regulations disqualify anyone who has acted as your agent in the previous two years. Most QIs are specialized companies or bank subsidiaries that do this work full time.
We’ve worked with several QIs over the years and we’ll recommend two or three for any client running a 1031. We don’t take a fee from the QI. We’re not paid to refer you. Our recommendation comes from watching which firms actually return calls when a deadline gets tight.
Identification rules: the 3-property, 200%, and 95% tests
When you identify replacement property within the 45-day window, you have to follow one of three rules:
- The 3-property rule. Identify up to three properties of any value. Most exchanges use this rule.
- The 200% rule. Identify any number of properties, as long as the total fair market value doesn’t exceed 200% of the value of the relinquished property.
- The 95% rule. Identify any number of properties of any value, but you have to actually acquire at least 95% of the total identified value.
Identification has to be in writing, signed, and delivered to the QI by the 45th day. A verbal identification doesn’t count. An email to your broker doesn’t count. The QI needs the document in hand.
Boot, debt, and partial exchanges
If your replacement property is worth less than what you sold, the difference is called “boot” and it’s taxable. Same thing if you reduce your debt. If you sold a $2 million farm with $500,000 of debt and bought a $1.8 million replacement with $400,000 of debt, you’ve taken $200,000 of value boot and $100,000 of debt boot. That $300,000 is taxable in the year of the exchange.
To defer all the tax, the replacement property has to be equal or greater in value, the debt has to be equal or greater, and all the cash has to roll forward. Most 1031 exchanges we handle aim for full deferral. Some clients deliberately take partial boot because they want some cash out of the deal. That’s a CPA conversation, not a broker conversation.
What this looks like in practice
A White County seller called us in February. She’d inherited 320 acres from her father, the basis was stepped up at his death, and she wanted to sell because the farm was three hours from where she lived. Her CPA flagged that she’d still have capital gains because the land had appreciated since the step-up. We listed the farm in March, found a buyer in May, and closed in July.
In parallel, we worked with her CPA and a Chicago-based QI to identify three replacement properties within 45 days of the July close. She picked a smaller farm in Tippecanoe County, closer to home, with a working tenant in place. She closed on the replacement in early September, well inside the 180-day window. Full deferral. No tax bill that year.
That sequence works when everyone moves on time. It falls apart when the seller waits until June to start thinking about replacement property.
FAQ
What property qualifies for a 1031 exchange in Indiana?
Real property held for investment or productive use in a trade or business qualifies. That includes tillable farmland, pasture, timber, recreational land with ag use, and improved farms. Personal residences, inventory, and property held primarily for resale don’t qualify. The relinquished property and replacement property both have to meet the like-kind standard.
How long do I have to complete a 1031 exchange?
You have 45 days from the closing of your relinquished property to identify the replacement property in writing. You have 180 days from the same closing date to actually close on the replacement. Both deadlines run concurrently and neither one can be extended. Weekends and holidays don’t pause the clock.
Can I do a 1031 exchange across state lines?
Yes. Section 1031 is federal tax law and the like-kind standard applies regardless of which states the properties are in. You can sell Indiana farmland and buy a replacement in Illinois, Wisconsin, Arkansas, Texas, or anywhere else in the United States. State tax treatment can vary, so verify with your CPA before closing.
Who can serve as a qualified intermediary?
A qualified intermediary has to be an independent third party who hasn’t acted as your agent in the previous two years. That disqualifies your attorney, CPA, broker, family members, and most people in your existing professional network. QIs are usually specialized companies or bank subsidiaries that handle 1031 transactions as their primary business.
What happens if I miss the 45-day identification deadline?
The exchange fails and the sale becomes fully taxable in the year it closed. There are no extensions, no hardship exceptions, and no way to undo a missed deadline. This is the most common point of failure in 1031 exchanges. Starting the replacement search before the relinquished property closes is the practical safeguard.
Can I receive any cash from the sale?
Not without triggering tax on the cash you receive. Any cash that doesn’t roll into the replacement property is called “boot” and it’s taxable as capital gain in the year of the exchange. Some sellers take boot intentionally because they want partial liquidity. Others structure the exchange for full deferral.
Do I need a 1031 if I inherited the farmland?
Often no, because inherited property gets a stepped-up basis to fair market value at the date of death. If you sell shortly after inheriting, you may have little or no capital gain to defer. If the land has appreciated significantly since the step-up, a 1031 can still help. This is a CPA conversation specific to your situation.
Free farm evaluation
We treat every client’s deal like it’s our own. If you’re thinking about selling Indiana farmland and you want to understand whether a 1031 exchange fits your situation, reach out. We’ll review your land, your timeline, and your tax situation alongside your CPA. There’s no cost and no obligation.
Call us at (219) 261-2000 or stop by 18390 S. 480 W., Remington, IN 47977.
About the author
Hinnerk Wolters is a Broker at Hageman Realty specializing in farm transactions, farm management, and complex agribusiness deals. He holds an MS in Agribusiness from Purdue and an MBA from Indiana University Kelley School of Business, and is licensed in Indiana, Illinois, and Wisconsin.
Read more about Hinnerk at https://hagemanrealty.com/agent/hinnerk-wolters/.
Published: 2026-05-27 · Last updated: 2026-05-27
