In 2018, Minnesota will offer a tax credit to encourage retiring farmers to sell or lease land, livestock, facilities and machinery used for farming to beginning farmers.
While similar tax credits are available in Iowa and Nebraska, Minnesota is the first state to offer such credits for the sale of farm land, says Ryan Roles, a senior loan officer with the Minnesota Department of Agriculture.
“The credit is an incentive to sell or rent land, facilities, livestock and machinery to beginning farmers rather than to established farmers who can usually outbid the younger farmer,” says Roles.
To qualify, a young farmer must provide the majority of the labor and management of the farm located in Minnesota, has entered farming within the last 10 years, provide projected earning statements and have a net worth less than $800,000. The young farmer also cannot be directly related to the person from which he or she is buying or renting assets.
The tax credit for the sale or lease of assets could then be applied to Minnesota income taxes of the older, agricultural asset owner. Three levels of credits are available:
• 5% of the lesser of the sale price or fair market value of the agricultural asset up to a maximum of $32,000.
• 10% of the gross rental income of each of the first, second and third years of a rental agreement, up to a maximum of $7,000 per year
• 15% of the cash equivalent of the gross rental income in each of the first, second or third year of a share rent agreement, up to a maximum of $10,000 per year.
The program is on a first-come, first-serve basis, notes Roles. The maximum amount of tax credit available is $5 million in 2018, and $6 million per year in 2019 through 2023. The program sunsets on Dec. 31, 2023.