To reduce capital gains on farm land, subtract from the proceeds any commissions, brokerage fees, title insurance and any other costs linked to the sale, notes CliftonLarsonAllen. In some states, certain guidelines permit additional reductions from taxable gains. A tax attorney familiar with state law has more specific details.
State capital gain taxes are generally deductible from federal income taxes, explains CLA. The exception happens when the taxpayer qualifies for the Alternative Minimum Tax, or AMT. The federal Alternative Minimum Tax does not permit deductions for state income taxes, whether on salaried income or capital gains. In some states, deductions are also permitted for federal taxes paid. Even though there is generally a limit on this deduction, it helps to reduce the overall tax bill.
One example would be a couple with ordinary income of $60,000 after deductions. From farmland, they made a gain of $150,000. Subtracting their ordinary income from $72,000, the guideline for federal capital gains taxes as of 2015, yields a remainder of $12,000. This would be taxed at 15 percent. At the state level, the full profit would be subject to income tax unless they live in a state providing farmland sale provisions, according to CLA.