However, investing in U.S. farmland has become popular among the ultra wealthy as a hedge against inflation and stock market volatility.
There are lots of inflation hedges, and stock market volatility doesn't matter much to someone who can ride it out.
There are tax strategies around real estate, and I'd guess that one goal may be leveraging that. Like, IIRC historically farms got certain tax-advantaged status as regards estate taxes, because there were lots of small farmers and farmers thus had a lot of votes. Some of that law is, no doubt, still on the books, and the wealthy will have tax and estate planners who can exploit that. I can't name specifics off-the-cuff, but I bet you that they're there.
searches
https://www.mossadams.com/articles/2024/12/estate-tax-exemption-for-farmers-and-ranchers
The primary reason heirs don’t need to sell the farm is that the federal government allows heirs to pay farm-related estate tax over time at a very low interest rate. Given the first $7 or $14 million of net value escapes all federal estate taxes, it’s only the excess that’s subject to the 40% estate tax.
The executor of a qualifying estate elects under Section 6166 to defer paying a portion of the estate taxes. Normally, the estate tax is due in full nine months after the date of death. However, the portion of the estate tax related to active assets, such as a farm, can be deferred. The active farm assets must be at least 35% of the adjusted taxable estate.
Yeah.
So, let's say you have, oh, $500 million in assets sitting around. You're getting old and gonna die. Theoretically, when you die, estate tax kicks in. You can hand down maybe $14 million without smacking into estate tax, the lifetime gift tax exemption. But then you're gonna pay 40% tax on the rest. That's not the end of the world
if you put the stuff in an S&P 500 index fund, that'd be made up in about 8 years of market-rate returns, on average. But it'll definitely slow things down. You gotta pay that each generation, and a generation averages a bit over 30 years.
So what I bet the estate planners these guys have are doing is making them legally farmers, and defer their estate taxes. They gotta pay the IRS something, according to this page, but it's effectively getting to borrow from the IRS at a really low rate. Then their heirs can use those assets that would have gone to the government in tax to make money in the meantime.
Plus, there are other tax games that you can play with real estate. Instead of selling it, borrow against it, and no capital gains tax.
Have income from some source and don't want to pay income tax? Use depreciation on the farm as a deduction to offset that income, make it non-taxable.
How much is that real estate worth? Well, now, that's a complicated question. If you can get the tax authorities to buy an argument that it's worth a lot less than fair market value, then you're only paying estate tax on whatever the government will agree the value of the real estate is.
According to the link I posted above, in Washington state, farms are completely exempt from state-level estate tax.
Washington
Farmers in Washington state are eligible for an unlimited farm deduction equal to 100% of the farm value under the state's estate tax law, which has the highest rate in the country at 20% on taxable estates over $9 million.
If certain conditions are met, the estate may deduct the total value of the farm from the estate tax return, potentially saving significant amounts in estate tax. Unlike federal rules, Washington state doesn’t require heirs to own the property for at least 10 years after death. After the decedent's death, the heirs are free to do as they wish with the assets.
So, say someone buys a lot of farmland before they die on the guidance of their estate planner. Now Washington state gets no estate tax from them. They can pass hundreds of millions or whatever in assets to their heirs, whereas someone else would have Washington state take a 20% cut.
I've got no experience with buying farmland. But I strongly suspect that the reason that specifically very wealthy, elderly people would buy farmland is for tax purposes. Aiming to avoid taxes, especially estate tax. It's not because farms are some sort of remarkable, amazing investment absent that.