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Abstract

Water—a powerful resource involved in daily life. Whether it is for personal use or use in production, water is the liquid fueling advancement. While some areas of the United States have abundant water sources, others do not. Ranging in definition, the Midwest region of the United States has various sources of water: groundwater, surface water, and rainwater.

A prominent use of these water sources in the Midwest region— and specifically in Nebraska—is irrigation. Irrigation is the use of water to encourage growth, otherwise defined as the “watering of land by artificial means to foster plant growth.” Whether using the daily sprinkler to water the backyard grass or using thousands of gallons of water for one acre of farmland, the purposes of irrigation are endless. However, some farmland cannot be irrigated. Farmers must analyze and evaluate the need to irrigate based on the productive use of their land, the land’s location in relation to reliable water sources, and any limitations on water usage established by state, county, or city authorities.

Nebraska, through its twenty-three natural resources districts (NRDs), has placed restrictions on the use of water for irrigation. Each NRD determines whether and how many certified irrigated acres (CIAs) are issued to landowners within the district. These CIAs are acres of farmland held at a premium within an NRD because they are designated with the right to irrigate.6 Thus, landowners prefer to exchange CIAs under § 1031 of the Internal Revenue Code (the Code) to receive tax deferral benefits of like-kind exchanges.

This Comment argues CIAs are considered real property under § 1031. Before the Tax Cuts and Jobs Act of 2017 (TCJA), like-kind exchanges were allowed for both real property and personal property.7 Now, like-kind exchanges are limited to real property only.8 Part II of this Comment provides a detailed explanation of NRDs, CIAs, and § 1031 before and after the TCJA. Part III walks step by step through the § 1031 requirements and argues that CIAs are real property, qualifying for a like-kind exchange with other real property. Part III also addresses the opposing view arguing CIAs are not real property and do not qualify for like-kind exchanges, identifies the implications of both viewpoints, and focuses on the benefits of classifying CIAs as real property. Lastly, Part IV finalizes the discussion with a lasting thought.

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