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A little clarity for your next decision.
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Investor WorkspaceA little clarity for your next decision.
By Jerry Baker
A Nebraska 1031 exchange can defer gain when you replace qualifying investment or business real estate with other qualifying real estate. A sound plan also needs to account for Nebraska's transfer tax, property tax credits, farm leases, water records, and the demands of the replacement property. This guide helps owners compare continued direct ownership with a qualifying Delaware Statutory Trust, or DST. [1]
An owner selling leased farmland may want steady income with less oversight. Someone selling apartments may want fewer repair calls. Another owner may be happy to manage property but want to move away from a single tenant. Those are different goals, even when each owner plans a 1031 exchange.
I would start with three questions. How much income do you need? How much work do you want to keep doing? How much money must stay available outside real estate? Write the answers before comparing listings or projected returns.
Then make a short profile of what you own now. Include the property rights, debt, leases, annual costs, and work you handle yourself. Add a separate list of known issues that a buyer will ask about. For a farm, that might include irrigation equipment and tenant rights. For a commercial building, it could include a roof obligation or a lease ending soon.
The best replacement is not necessarily the property most like the one you sold. It is the one whose role, risks, and demands make sense for your next stage of ownership. The exchange rules and the investment decision both need to work.
Section 1031 generally applies to real property held for investment or productive use in a business. A home used only as your residence and property held mainly for sale do not meet that basic test. Deferral is not permanent tax forgiveness, and a transaction can produce some taxable gain. Have your tax adviser review your facts and ownership structure. [1]
For a usual delayed exchange, arrange a qualified intermediary before the sale closes. Replacement property generally must be identified in writing within 45 days after the transfer. It must be received within 180 days, or by the tax return due date, including extensions, if earlier. The rules also address access to proceeds and limits on identification. Confirm the full requirements with the intermediary. [2]
Work backward from those dates. Set time aside for title work, financing, water questions, legal review, and approval of an investment offering. Do not assume that a seller, lender, or county office can turn around an unresolved issue on the last day.
Keep the exchange calendar separate from the property operating calendar. A tax deadline does not change a tenant's lease rights, make an insurance quote final, or settle a well record. Both calendars should be reviewed before you commit to a closing date.
Nebraska's current statute imposes documentary stamp tax on the grantor at $3.32 per $1,000 of value, or fraction of $1,000. That rate took effect July 18, 2026. The law currently provides for $2.32 beginning January 1, 2032. Deeds are presumed taxable unless an exemption is shown. Value has a statutory definition, so ask the closing team to calculate the tax for the actual transaction. [3]
For a simple illustration, $1 million of taxable value at $3.32 per $1,000 produces $3,320 of tax. That is before other closing costs. Do not use an older worksheet showing $2.25 or $2.32 for a transfer subject to the current rate.
The Department of Revenue's Directive 25-2 explains that a typical 1031 exchange does not remove the duty to collect documentary stamp tax. It separately addresses certain transfers involving an exchange accommodation titleholder in a reverse exchange. Those exemptions depend on the documents and circumstances; they are not a blanket exemption for every deed in an exchange. [4]
Ask for a schedule of each expected deed, the parties to it, and the tax treatment the closing team plans to use. This is particularly useful when a transaction includes more than one step. The words “tax deferred” on an exchange proposal do not tell you every cost that will appear at closing.
Nebraska's September 15, 2026 announcement describes separate real property and school district property tax relief credits. For 2026, it lists real property credit rates of $118.87 per $100,000 of non-agland taxable value and $142.64 per $100,000 of qualifying agland taxable value. The announcement says these credits reduce the amount due after taxes are levied; they do not reduce local tax rates. [5]
This distinction matters when you review a seller's expense statement. Ask for the full tax bill, not just the check amount. Identify the year taxes were levied, the credits applied, any unpaid amounts, and how closing prorations will be handled.
For a farm with a house and other improvements, have the assessor explain how the parcel is divided for tax purposes. Do not apply one credit rate to every dollar merely because the mailing address is rural. For any replacement, use the property's actual classification and your planned use.
I would model the full expense, the documented credit, and the net expense on separate lines. If a future credit is uncertain, show that uncertainty rather than building it into a fixed annual income promise. A buyer should be able to see exactly why one year's tax expense differs from another.
The University of Nebraska–Lincoln's 2026 final survey reported a statewide all-land average of $3,905 per acre as of February 1, down 1% from the prior year. It publishes results by region and land type. The research reflects responses from land professionals, and the university warns against using its averages to value a specific parcel or set its rent. [6]
That is useful context, but the property file must do more work. What type of land is included? How many acres are actually leased? Who pays for irrigation repairs, fencing, access, and other work? Which income comes from farming, grazing, storage, or a separate agreement?
Compare a seller's claimed rent with the lease in force. A discussion about next year's possible rent is not the same as an executed contract. If the price assumes a rent increase, identify who must agree to it and when.
Imagine two farms with the same annual cash rent. On one, the tenant handles certain equipment repairs. On the other, the owner must pay those costs. Equal rent does not mean equal owner income. Put the duties beside the rent before comparing either farm with a DST distribution target.
Also keep value and income assumptions separate. If the case for buying relies on both rising rent and a higher sale price, test them separately. Ask whether the plan still meets your needs if one improves and the other does not. A statewide survey cannot answer that for your parcel.
The Nebraska Department of Water, Energy, and Environment provides a registered-well search with information such as purpose, status, location, depth, and water level at drilling. It also has maps and resources for owners. Those records offer a starting point for review; a measurement made when a well was drilled is not a current pump test. [7]
Current state law requires the department to be notified when ownership of a well required to be registered changes. It also sets requirements for well registration, modifications, and replacement wells. Have the well professional and closing team identify what applies to each well in the transaction. [8]
For each well, I would want the registration number, location, current use, service history, and responsible owner. Match those facts to the survey and purchase contract. If the land includes more than one water source, do not stop after finding a record for the first well.
Ask who owns the pump, motor, power connection, and irrigation equipment. Find out whether any part is leased, shared, or located on another parcel. A system that works physically still needs clear rights and a workable maintenance plan.
For example, a buyer may see an irrigation system operating during a tour. The important follow-up is whether the buyer will receive the equipment and the rights needed for the same use. A demonstration is not a substitute for the contract and records.
Nebraska law requires a natural resources district to record an instrument when it approves a transfer of certified water uses or certified irrigated acres under the specified provision. The record identifies the land involved and the nature of the transfer. That is a reason to review district and county records, rather than assuming the visible equipment tells the whole story. [9]
Before buying irrigated land, contact the district for the actual parcel. Ask what use is recognized, what limits apply, and whether your proposed changes require approval. Keep its written response with the title and well records.
A farm budget can be sensitive to an assumption that a buyer will add irrigated acres or shift water use. Treat that as an open condition until the right people confirm it. Price the property based on rights and approvals you can document, not only a plan drawn over an aerial photograph.
If the answer is uncertain, compare a case without the proposed change. Would the purchase still make sense? Could the current tenant operate under that case? This helps show whether you are buying an income asset or relying on a future approval to make the numbers work.
The university's July 2026 legal guidance explains that Nebraska's typical year-to-year verbal farmland lease runs from March 1 through the end of February, with six months' notice to terminate. It distinguishes written leases and seasonal pasture arrangements. Because the exact agreement matters, have local counsel review the lease, notices, and proof of receipt before promising a buyer possession. [10]
Do not assume a sale erases a handshake agreement. Ask both parties for their understanding of rent, crop rights, repairs, equipment, and the next lease year. A missing written lease makes that work more important.
A buyer planning to change operators needs a realistic handover date. Compare it with the crop cycle, equipment needs, and the financing plan. If your purchase contract assumes vacant possession, have counsel confirm how that promise will be met.
As a practical example, an investor could close in autumn yet lack the right to place a new operator on the land when expected. That can change the first year's income and work plan. The issue belongs in the review before closing, rather than in a dispute after the keys change hands.
Nebraska's residential deposit statute generally limits security to one month's periodic rent, with a separate limited pet deposit provision and an exception for specified housing agencies. It requires the remaining balance and written itemization within 14 days after tenancy termination. It also addresses where to mail the items if the tenant supplies no address. Ask counsel to apply the full law to the tenancy. [11]
When reviewing an apartment purchase, ask for a deposit list by unit and reconcile it with leases and accounting records. Check whether recent move-outs have been fully processed. A balance in a bank account does not tell you which amounts belong to which tenants.
Request the repair history and open work orders as well. A low repair bill may reflect a well-maintained building, delayed work, or work the seller performed without recording its cost. The records and inspection need to explain which it is.
Build the first year's reserve from actual needs. If an inspection identifies near-term work, put the scope and estimate into the budget. Then decide who will manage it and how long it could affect occupancy. The rent roll and the repair plan should describe the same building.
Nebraska's flood mapping resources distinguish regulatory FEMA maps from other information, including state Flood Awareness Areas and work maps. Basic mapped areas may lack detailed flood elevations. The state directs owners needing a base flood elevation determination to their community floodplain administrator. Use the correct map products and local review for the property. [12]
Review the whole operation: buildings, access, equipment, storage, and utilities. Ask whether a disruption to one part could stop income from the rest. This can matter to a farm tenant, an industrial tenant, or residents of an apartment building in different ways.
Before comparing final returns, obtain property-specific insurance terms. Ask what is covered, what is excluded, which deductibles apply, and what the owner would fund. An insurance allowance in an early brochure may not equal the proposal available for your ownership.
Document any required work or further study. The point is not to reject every property with a question. It is to understand the question, the cost to resolve it, and the risk that remains.
IRS Revenue Ruling 2004-86 describes circumstances in which a DST interest can be treated as an interest in real estate for exchange purposes. The ruling includes limits on the trustee's powers. Review the particular offering's structure and tax analysis; a trust's name does not establish exchange eligibility. [13]
A sponsor-managed investment can change the work you do, but it also changes your control. Ask who chooses vendors, handles major repairs, manages debt, and decides when to sell. Compare those answers with the decisions you want to keep making yourself.
Private placements may be illiquid, provide limited information, and result in loss of the entire investment. A distribution target and a planned hold period are not guarantees. Keep enough accessible money for your own needs outside a long-term investment. [14]
Use a simple side-by-side review. For the direct property, subtract a fair estimate of paid management and work you would otherwise do yourself. For the DST, identify fees, reserves, financing, and the basis of the target distribution. Avoid comparing a property's gross rent with an investor's projected net payment.
As an illustration, $60,000 of rent less $18,000 of owner expenses leaves $42,000 before debt payments, tax, and any costs not included. On $900,000 of equity, that is about 4.67% at that stage of the calculation. It is not a complete return figure. Label each subtotal so it is clear which costs are still missing.
Qualifying real estate can generally be exchanged for other qualifying real estate; it need not have the same use. Both properties and the transaction must meet federal requirements. Have your advisers review the land, any other assets sold, and the replacement interest. [1]
No. State guidance says a typical exchange does not remove the tax. Certain transfers in a reverse exchange may qualify for an exemption, but the required facts and documents must be established. [4]
No. The current statute increased it to $3.32 per $1,000 of value, or fraction, effective July 18, 2026. Check the applicable rate and any exemption at closing. [3]
Use it as regional context, not a parcel appraisal. The university warns that survey averages should not set a specific property's value or rent. Review the actual land, rights, leases, costs, and comparable evidence. [6]
Do not assume so. The existing agreement and notice rules matter. Written leases, year-to-year verbal farmland leases, and seasonal pasture arrangements can differ. Have counsel confirm possession and notice requirements before you set a handover date. [10]
No. Review the trust's governance and the sponsor's decision-making powers. The legal structure that supports exchange treatment includes restrictions, and investors should understand them before investing. [13]
Educational information, not an offer or a personal tax, legal, or investment recommendation. Examples are hypothetical and omit stated adjustments. Tax treatment depends on your facts and current law. Review your transaction with your CPA, attorney, and qualified intermediary. Real estate investments can lose value and may be illiquid.
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