If your family owns farmland, this question will come up sooner or later. Should you sell the farm and put the money to work elsewhere, or keep the land and let it keep working for you? Here in northern Iowa, this conversation comes up often, sometimes prompted by retirement, sometimes by an inheritance shared among siblings, and sometimes just by wondering if it is time for a change. The honest answer depends on your numbers, your goals, and your family, but running the numbers side by side is a good place to start.
More Than a Feeling
It is easy to assume this decision comes down to how attached you are to the land. Attachment matters. Plenty of families measure their history in planting seasons rather than years. But the financial side of this decision deserves just as much attention as the emotional side. Selling farmland and keeping farmland are both reasonable choices. The trouble comes from choosing one without understanding what the other one actually offers.
What Selling Really Nets You
A $1 million sale price does not mean $1 million in your pocket. Between federal capital gains tax, investment income tax, potential Iowa income tax, and selling and closing costs, a meaningful share of that value can disappear before you ever invest a dollar of it. Here is what that can look like:
| Farm Sale Amount | |
| Sale price | $1,000,000 |
| Estimated federal capital gains tax | -$132,000 |
| Potential investment income tax | -$25,000 |
| Potential Iowa income tax | -$26,000 |
| Selling and closing costs | -$40,000 |
| Amount left to invest | $777,000 |
Taxes vary quite a bit depending on how the farm was acquired, your basis in the property, and your personal situation, and some Iowa farmland sales qualify for special tax treatment. Still, in this example, invest the remaining $777,000 at an average 7% annual return, and after 10 years it grows to approximately $1.53 million. That is a strong return. The question is how it stacks up against keeping the farm.
What Keeping the Farm Can Look Like
Farmland has a quality that a lot of other long-term assets do not: it can appreciate in value while also producing income along the way. Think of it somewhat like a nest egg that also pays you rent every year. Professional farm management can take the day-to-day responsibilities off your plate, so keeping the farm does not have to mean running it yourself.
For this example, assume the $1 million farm appreciates an average of 3% per year and generates approximately $22,000 per year in net income after estimated farm management and ownership expenses, and that income is invested each year at an average 7% return. After 10 years:
| Keep the Farm Value | |
| Estimated farmland value | $1,344,000 |
| Invested farm income + growth | $304,000 |
| Total estimated value | $1,648,000 |
Side by Side Over 10 Years
Here is the simple 10-year comparison:
| Sell & Invest | Keep & Reinvest Farm Income | |
| Farm value today | $1,000,000 | $1,000,000 |
| Amount invested after sale | $777,000 | — |
| Value of investments after 10 years | $1,528,000 | $304,000 |
| Farm value after 10 years | — | $1,344,000 |
| Total after 10 years | $1,528,000 | $1,648,000 |
Keeping the farm comes out approximately $120,000 ahead in this example. It will not play out exactly this way for every farm or every family, but it shows that keeping the land and reinvesting the income deserves a real look before assuming selling is the better move. These numbers assume average annual rates of return of 7% on investments and 3% appreciation on farmland. Neither is guaranteed, and farm income, farmland values, investment returns, taxes, and expenses can all change.
Don’t Assume Selling Is the Obvious Answer
Farmland owners are sometimes encouraged to sell their land and move the proceeds into stocks and other investments. That can absolutely be the right decision for some people. But it helps to know where that advice comes from. Financial advisors are generally in the business of managing investment portfolios, and selling farmland is what creates the money that goes into those portfolios. That does not make the advice wrong. It simply means the decision is not as clear-cut as it may first appear.
It’s Not Just About the Money
For families who inherit farmland together, this decision often gets more complicated than a spreadsheet. One sibling may want to keep the farm in the family. Another may want the income it produces. A third may be ready to sell and move on. None of those goals are wrong, but they do need to be talked through openly, and having a professional in the conversation can make that easier for everyone.
Run Your Own Numbers
Every farm and every family is different, and the numbers above are only an example. We have developed a Farm Value Calculator to help Iowa landowners see how selling or keeping their own farm might play out. In the meantime, we are always happy to sit down with you and work through your specific situation, whether you are weighing this decision on your own or alongside family members with different goals.
Before You Decide
Before you sell the farm, it is worth understanding what you would be giving up as well as what you would be gaining. Sunderman Farm Management has spent decades helping North Central Iowa families work through exactly this kind of decision, and we would be glad to help you look at yours.
These examples are for illustrative purposes only. Rates of return, farmland appreciation, farm income, taxes, and expenses are not guaranteed and will vary. This information should not be considered tax, legal, investment, or appraisal advice.