Agricultural Economics Department


Date of this Version

August 2005


Published in Cornhusker Economics, 08/17/2005. Produced by the Cooperative Extension, Institute of Agriculture and Natural Resources, Department of Agricultural Economics, University of Nebraska–Lincoln.


Nebraska agricultural land values have increased nearly 50 percent in the past decade. To many observers this increase is much greater than would be expected based on crop profitability. Increasingly it is mentioned that the Section 1031 Exchange provision of the Internal Revenue Code is an important element leading to increased land values. This provision provides for tax deferral of the capital gain tax if an exchange occurs with like-kind property. The 1031 provision was enacted in 1984 by limiting the scope of the Starker Court decision of 1979. In 1991 IRS issued regulations regarding procedures of 1031 Exchanges. Section 1031 Exchanges have become so popular that the tax deferral aspects are commonly viewed as having a major tax sheltering-upward impact on land values.