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Among other things, because of the bank's actions, the entire amount from the sale was classified as income and taxed accordingly. They ended up having to sell their home to pay off the income taxes they incurred by selling some machinery

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What did the bank do that caused the IRS to declare the sale as income?

Is sounds as though they sold equipment that had been depreciated below the sales price making any proceeds taxable income. They could have put the money in a sock and you get the same outcome.

You buy a widget for $1000.....depreciate it down to $100 and then sell it for $600.....what happens with $500?

nnichols - I can't PM. Have a e-mail? I'd like to discuss further.

[This message has been edited by lostboy (edited 3/8/2010 2:33p).]

nichols4176@neo.tamu.edu

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What did the bank do that caused the IRS to declare the sale as income?

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I think they had planned to reinvest the money back into the farm.

It is quite common for farmers, when having a very good year financially, to spend much of the money on things necessary for the farm and thus reduce their taxable profits.

Perhaps they could have done that anyway, but I think that they didn't realize the consequences of what the bank had done until after the year was over and it was too late.

If they didn't reinvest before the year was over, they were cooked regardless of the bank's actions.

And frankly, if they sold equipment that was pledged as collateral for the bank loan, the money did ethically need to go toward the loan.

Sounds a bit like they blamed the bank for their screw up.

Got it nichols. Thanks.

I agree Canyon. Seems like they lost track of their asset classifications and then really made a series of poor decisions.

Lay out the $9.9....fast track the $7 million and bam! You have a $10 mil ranch for less than $3.

Disclaimer....It may not work as previously discussed.

http://www.texashuntingland.com/Listings/3762diamondD.htm

I don't think that the equipment was collateral for the loan.

We own 120 acres in Callahan County. We use it strictly for hunting. We pay about $1200.00 per year in taxes. We have chosen not to put cattle on it. We do not feel that it will be worth the trouble or the initial expense. Plus we do not have to fence in our feeders or food plots.

We take approximately 6 deer(3 bucks and 3 does) off of it each year. Hogs vary but we killed 10 last year and 16 the year before.It is strictly family with a couple of invited guests each year.

The great thing about owning your own land is that you do not have to answer to a landlord and can make up your own rules. You do pay for the privilege of owning it yourself. I doubt that you could make enough money off of it to make it pay for itself. The other good thing that land almost always appreciates in value. It is a good long-term investment.

A few years ago, someone bought three or four sections of ranch land in the Oklahoma Panhandle to use for hunting.

After they bought it, they asked the seller if he would mind keeping cattle on it to keep the brush under control. No charge. All he had to do was take them off a week or two before hunting season started.

....and the seller is asking himself, "Why didn't I see this guy coming....I could have got more for the property. I can't believe he is allowing me to graze cattle for free. I would have gladly paid him the going rate."

thanks for all the info.

Todd, thanks for sharing those details.

Inheriting the land helps as previously stated.

Being wealthy with the cash to burn helps.

Not requring an annual return / income stream to offeset mortgage and interest to make the deal fly helps.

Being able to hold the property and cashing out after the land value appreciates helps.

Pretty much every rancher / operator I've ever met is land rich and cash poor. Not an indictment on them its just the nature of the beast.

From what I have seen with large ranches is either
1. Been in family for many many years.
or
2. Hobby ranch ie guy makes millions doing something else and buys a ranch for a hobby.

Most ranchers are lucky if they break even on their operations and that is if you own the land free and clear.

I was told that years ago a rancher could buy a truck with 20 feed lot calves and now it takes 60 (numbers could be off) but the point is that it isn't what it used to be.

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I was told that years ago a rancher could buy a truck with 20 feed lot calves and now it takes 60

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Probably correct. On the grain and cotton side, prices in dollars/unit really haven't changed much in the past 30 years, with the exception of short-term spikes like two years ago.

And you know that expenses have more than tripled.

Here is our Austin weekender ranchette scenario:

We were in the 35% tax bracket. The deductions from our house, 401k and ranchette reduced our taxes to 12.5%. The 22.5% we saved was more than we paid for both our mortgages.

Our property taxes on our ranchette are $200/year. We let our neighbor lightly graze around 70 - 75 head of cattle on our place for the ag exemption. It could handle more but, the neighbor just cuts hay when they can't keep up.

If you find the right fit for your tax situation, a second home ranchette is better than free. However, that will not stop you from spending a fortune on fences, barns, tractors, etc., etc.

I should add that once you've had your property a few years, even if it was for investment only, you will probably want to hold on to it forever.

[This message has been edited by HECUBUS (edited 3/9/2010 10:51a).]

I've always had the opinion that if you are looking to buy a farm or ranch, you are going to be out the money no matter what. Basically you are paying for the privledge of owning the land and doing what you want to with it without having to worry about landlords, owners, partners, etc.

The odds of making money outside of the sale of the land several years down the road are somewhere between slim and none. It's possible, given the right circumstances, but not probable.

If you have disposable income and need the ability to write off debt to help your taxes, then that's probably where you'll get the most return for your expense, aside from the enjoyment of owning your own piece of property.