Why Perform a 721 Exchange?

Legacy Farmland Fund allows farmland owners to defer capital gains taxes which can avoid the value of the farmland from being lost during a traditional sale. A taxable event only becomes triggered when the farmland owner redeems his or her shares in the Fund.

With the Legacy Fund, shares can be redeemed after a one to two year ownership period in the Fund. Plus, redemption of shares during certain periods of life can allow a shareholder to redeem while they are in a lower tax bracket.

Benefits:

While shares are held, shareholders enjoy many benefits, including access to capital, income and the protection of diversity.

Access to capital: Unit holders can pledge shares to borrow money for elder support care services through Legacy’s credit relationship with Farm Credit Services of America, using dividend payments to service debt without having to sell shares and incur capital gains tax.

Income: While shares are owned, shareholders receive passive financial as shares owned yield quarterly dividends and appreciation.

Protection with Diversity: Retaining unit ownership in a broad portfolio of farmland results in the ability to take advantage of future revenue sources derived from the entire portfolio – like wind, solar, wetlands, easements, mineral rights and of course revenue from crop production.

One of the most profound benefits is the ability to plan for one’s own estate as well as heirs. Share ownership in Legacy’s 721 Exchange means a once static asset like farmland is able to be easily divided amongst heirs once it is converted to shares provide shareholders with ultimate flexibility in gifting, bequeathing and retaining.

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How Does It Work?

Internal Revenue Code Section 721 states that if a property is contributed to a partnership in exchange for an interest in the partnership, no gain or loss will be recognized from the exchange.

A 721 exchange does not trigger a taxable event, and the IRS will not collect taxes on any realized capital gains from the property sale. In brief, here’s how the 721 exchange process works:

• Farmland owners relinquish their farmland to the operating partnership.
• Farmland owners receive shares in the partnership and become shareholders.
• The partnership maintains ownership of the farmland and distributes the income to the shareholders.
• Shareholders may choose to sell, gift, bequeath or retain their shares.

A 721 tax-deferred exchange can provide farmland owners with many more benefits and understanding this valuable tool can save farmland owners thousands of dollars in addition to flexibility heretofore unavailable.

Professional Fund Management means shareholders benefit from expert managers that oversee Fund operations, decision making, acquisitions and dispositions. Additionally, farms are professionally managed with commercial farm management companies that maximize returns with proper lease structures and oversight, discounts, capital improvements & progressive partnerships.

What does the Code of Federal Regulations Say?

26 U.S. Code § 721 – Nonrecognition of gain or loss on contribution

(a) General rule No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.

(b) Special rule Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351) if the partnership were incorporated.

(c) Regulations relating to certain transfers to partnerships. The Secretary may provide by regulations that subsection (a) shall not apply to gain realized on the transfer of property to a partnership if such gain, when recognized, will be includible in the gross income of a person other than a United States person.

(d)Transfers of intangibles For regulatory author transferred to a partnership as sold, see section 367(d)(3).