According to the U.S. Dept. of Agriculture Census of Agriculture, the average age of today’s farmer has increased to 58 years of age. Concerns are increasing over who will step up as the next farming generation considering dramatic increases in land prices and the high cost of equipment and inputs make it difficult for young farmers to get a foothold. Recognizing the problem, state and federal governments have introduced incentives to get beginning farmers started. The next three blogs will summarize some of those incentives provided in Iowa, Nebraska and at the federal level.
Iowa Beginning Farmer Tax Credits
The Iowa Agricultural Development Division (“IADD”) has two tax credit programs to assist beginning farmers.
The Agricultural Assets Transfer Tax Credit, commonly referred to as the Beginning Farmer Tax Credit program, allows agricultural asset owners to earn tax credits for leasing their land, equipment, or breeding livestock to beginning farmers. The maximum credit is $50,000. Terms include a 7 percent tax credit for cash rent leases or a 17 percent tax credit for crop share leases. Lease terms and duration are set by the asset owner, but must be a two to ﬁve year lease term. There is additional credit available if the beginning farmer is a veteran.
The new Beginning Famer Custom Farming Tax Credit program offers a tax credit to anyone hiring a beginning farmer to do agricultural contract work for the production of crops or livestock. The Iowa Legislature created the Custom Hire Tax Credit Program in 2013 as an incentive for hiring beginning farmers. The tax credit is 7 percent of the value of the custom work performed by the beginning farmer, with a maximum credit of $50,000. If the beginning farmer is a military veteran, the tax credit increases to 8 percent for the ﬁrst year he or she participates in the program. Iowa Finance Authority.
Iowa Beginning Farmer Loan Programs
The Iowa Beginning Farmer Loan Program assists new farmers in acquiring agricultural property by offering ﬁnancing at reduced interest rates. Beginning Farmer Loans are ﬁnanced by participating lenders with the issuance of federal tax exempt bonds by the Iowa Finance Authority; contract sellers also receive a state tax exemption on the interest income. The tax exempt interest income earned by lenders and contract sellers enables them to charge borrowers a lower interest rate, which will typically result in about a 25 percent rate reduction using the program. For this program, applicants must be below 30 percent of the county median for land ownership. Eligible projects include land, machinery, equipment, breeding livestock, or farm improvements. Iowa Finance Authority.
The Loan Participation Program assists low income farmers to secure loans and make down payments. IADD can supplement the borrower’s down payment, helping a farmer secure a loan more readily. The lender’s risk is also reduced because the IADD provides a “last-in/last-out” loan participation for the ﬁnancial institution. Eligible projects include land, machinery, equipment, breeding livestock, or farm improvements. Funding is available for up to 30 percent of the project cost, up to $150,000 with interest rate equal to 1 percent above FSA’s Beginning Farmer loan rate, ﬁxed the ﬁrst ﬁve years, then adjusted to 1 percent above the FSA rate at that time, with a 10-year balloon payment. Iowa Finance Authority.
Finally, the Iowa Department of Natural Resources Lease to Beginning Farmers Program gives beginning farmers the first chance to lease DNR owned land. Potential tenants must meet all of the requirements to be certified as a Beginning Farmer by the Agricultural Development Division of the Iowa Finance Authority which reviews residence, net worth, training and experience, and ensures the farmer’s substantial participation in the farming. There are also requirements for the terms of the lease, including: (1) lease must be less than 240 acres, (2) lease cannot be for more than seven years, and (3) farmer must establish a conservation system, crop rotation, and other soil conservation practices. Iowa Finance Authority.
It is important to check with your attorney, accountant and banker to see if you can take advantage of any of these incentives.
Up next: Nebraska
Authored By: Katie French