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TAX INCENTIVES FOR SALES/RENTALS TO BEGINNING FARMERS

September 12, 2017

Written by Christopher Roe

Given the capital and land access issues faced by beginning farmers, it’s not surprising that the average age of the American farmer is approaching age 60.  To get a meaningful start in farming, beginning farmers must deal with numbers in the seven figures in terms of capital requirements and debt.  With these numbers, there is minimal room for error, and many times individuals who may desire to farm choose other opportunities, leaving the rural area in which they grew up.

To combat these issues, Minnesota has a new law that provides tax incentives to taxpayers who sell or rent farming assets such as agricultural land, buildings/facilities, machinery/equipment and livestock to beginning farmers.  This new law offers an opportunity for beginning farmers to develop new relationships to expand their operation.  Furthermore, it provides retiring farmers with no family successors an incentive to start a relationship with a beginning farmer.

Some details of the new Minnesota law:

  • For sales to beginning farmers, the taxpayer receives a tax credit off their Minnesota tax liability of 5% of the sale price up to a maximum of $32,000.00.
  • For rentals to beginning farmers, the taxpayer receives a tax credit off their Minnesota tax liability of 10% of the gross rental income in each of the first 3 years of the lease up to a maximum of $7,000 per year.
  • A beginning farmer is someone who has started farming in the last 10 years and cannot have a net worth greater than $800,000.00.
  • There are no tax credits available for sales/rentals between family members (parents, grandparents, brothers, sisters, spouses, children and grandchildren).
  • If the amount of the credit exceeds Minnesota tax liability, the excess may be carried forward 15 years.
  • The Rural Finance Authority must certify the beginning farmer and tax credit. The beginning farmer must participate in a financial management program, the cost of which is subsidized through a tax credit to the beginning farmer.  The credit is capped, and it is on a first come, first served basis.  RFA is in the process of developing a Beginning Farmer Tax Credit Application.

For any questions on the Beginning Farmer Tax Credit or any agricultural law matters, please contact Christopher Roe at 507-345-1166 or croe@blethenlaw.com

 

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