Selling Inherited Land

Three priorities in the first 30 to 60 days. First, verify title and confirm probate or trust transfer is complete — farmland often passes through county-by-county recording, especially when property crosses state lines. Second, get a qualified appraisal documenting fair market value as of the date of death; this establishes your stepped-up basis under IRC Section 1014 and protects you from later IRS challenge. Third, review any existing tenant lease and crop year to understand income, harvest rights, and notice requirements. Hageman brokers can provide market valuation, coordinate with ASFMRA-credentialed ag appraisers, and connect you with the estate planning attorney and CPA the situation needs.

Under IRC Section 1014, property transferred at death receives a stepped-up basis equal to fair market value on the date of death — the heir's basis resets to current value rather than carrying over from what the decedent paid decades ago. For farmland that has appreciated significantly, this can eliminate substantial embedded capital gain. If you sell shortly after inheritance at fair market value, the taxable gain is near zero. If you hold and sell later, only post-death appreciation is taxed. Step-up survived the One Big Beautiful Bill Act signed July 4, 2025 — earlier proposals to repeal it did not pass. To document the new basis, obtain a qualified appraisal contemporaneous with the date of death.

Not at the moment of inheritance — the IRS does not tax the act of inheriting. You may owe taxes when you sell or otherwise dispose of the land. Under IRC Section 1014, your basis is fair market value on the date of death, so federal capital gains tax applies only to appreciation after that date. Federal estate tax applies only to estates above $15 million per decedent (effective January 1, 2026 under OBBBA). Indiana, Wisconsin, Arkansas, and Texas have no state estate or inheritance tax. Illinois has a $4 million state estate tax threshold with rates topping out at 16 percent. Texas voters constitutionally banned state estate, inheritance, and capital gains taxes in November 2025 (Proposition 8).

A partition action is a court proceeding that forces the division or sale of real property held by two or more co-owners when they cannot agree. Courts recognize two methods: partition in kind (physical division) and partition by sale (proceeds split). Any co-owner can file regardless of how small their fractional interest. The Uniform Partition of Heirs Property Act (UPHPA) provides specific heir protections — independent court-ordered appraisal, 45-day cotenant right of first refusal at appraised value, and open-market broker sale instead of sheriff's auction. Among Hageman's five states, Arkansas (effective January 2016) and Texas (effective September 2017) have adopted UPHPA. Indiana, Illinois, and Wisconsin have not adopted it, though Indiana's general partition statute (Ind. Code §32-17-4-2.5) includes UPHPA-like mediation and appraisal requirements.

The basic sale workflow is the same as any farmland sale but with extra documentation. Confirm probate is complete and title transferred to heirs (or trust). Obtain a qualified appraisal documenting fair market value at the date of death. Review existing leases and tenant rights. List with a broker or schedule an auction. The buyer's title company will require death certificates, court orders if probated, trust documents, and clear chain of title through any prior partition or buyout. Hageman brokers handle each step and coordinate with the estate planning attorney, executor, CPA, and Qualified Intermediary if any heir elects a 1031 exchange.

Several paths exist depending on the state and cooperation of co-owners. First, attempt a negotiated buyout — a sibling who wants to keep the land may finance the purchase of your share through an ag lender, typically at the appraised value. Second, sell your fractional interest to a third party (any tenant-in-common can sell their share, though buyers for fractional interests are rare). Third, file a partition action — any co-owner can force partition through the courts. In Arkansas and Texas, UPHPA gives non-filing cotenants a 45-day right of first refusal at appraised value before forced sale. In Indiana, Illinois, and Wisconsin, partition follows the general state statute and may default to sheriff's auction unless the parties agree to broker-led open-market sale. A farmland broker can mediate a buyout before partition becomes necessary.

Common patterns: a negotiated buyout where one sibling pays off the others at appraised value (often ag-lender-financed); installment sale or contract for deed where one sibling pays the others over time with interest; rolling the land into a family LLC with carefully drafted operating and buy-sell agreements (this prevents future partition because LLC members hold membership interests, not undivided real property interests); long-term lease arrangements between the operator heir and non-operator heirs; and equalization through life insurance, off-farm assets, or retirement accounts. Iowa State Extension data shows about 66 percent of farmers do not have a formal succession plan, which is why partition actions sometimes become the only available path. Plan early when possible.

Out-of-state heirs are common — Hageman regularly works with heirs on the Coasts and in other states who inherited farms across our five-state coverage area. The process is the same but requires more documentation: a local ag-experienced attorney for probate (state-specific rules), a farmland broker for market valuation and disposition, an ASFMRA-credentialed appraiser to document basis at date of death, and a property tour scheduled via the broker. Hageman provides drone aerials, soil maps, FSA records, and Land ID interactive maps so out-of-state heirs can evaluate the property before traveling. When multiple heirs are scattered across states, decisions on sell-versus-keep and lease-versus-sell coordinate via written family agreements signed before any partition action becomes necessary.

Three factors usually dominate the decision. First, tax position — if you sell shortly after inheritance at fair market value, the step-up in basis means near-zero capital gains tax. If you hold for years and then sell, only post-death appreciation is taxed. Second, income and management — cash rent income provides ongoing returns but requires tenant management, lease structuring, and conservation program coordination; farm management services run 5 to 10 percent of gross income and can cover the operational complexity for absentee heirs. Third, family dynamics — if siblings disagree or non-operator heirs need cash, holding may not be sustainable and sale or LLC restructuring becomes necessary. There is no universal right answer; Hageman helps families work through the trade-offs based on the specific tract, market, and family situation.

Leasing keeps the asset, generates ongoing income, and preserves the step-up basis at your eventual death (which erases deferred gain for your own heirs). Selling provides immediate liquidity and ends the management overhead. Cash rent leases are simpler but do not satisfy IRC Section 2032A material participation if you want to preserve special-use estate valuation (which can reduce the federal estate-tax base by up to $1,460,000 in 2026 for qualifying family farms). Crop-share leases with documented landowner involvement do satisfy material participation. For a neighbor sale, the neighbor often pays a slight premium (they want to consolidate operations), but you lose ongoing income and any future appreciation. Many heirs lease for 3 to 5 years to maintain optionality before deciding.

Possibly. Illinois has its own state estate tax with a $4 million exemption — significantly lower than the federal exemption of $15 million per decedent (effective January 1, 2026 under OBBBA). Once an Illinois estate exceeds $4 million, the tax applies from dollar one with rates topping out at 16 percent. Illinois Farm Bureau-backed legislation (SB 2921 and HB 4600) would raise the Illinois threshold to $6 million for qualifying family farms and convert the cliff into a true exemption — that bill remains pending in the Illinois General Assembly as of spring 2026 and is not yet law. Indiana, Wisconsin, Arkansas, and Texas have no state estate tax. Texas voters constitutionally banned state estate, inheritance, and capital gains taxes in November 2025 under Proposition 8.