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New law to enhance Iowa’s beginning farmer tax credit


DES MOINES, Iowa — Iowa Gov. Kim Reynolds has signed a bill into law that will significantly enhance the state’s beginning farmer tax credit program, which faced substantial cuts in 2018.

“The new law expands the Beginning Farmer Tax Credit to allow more individuals to participate,” said Iowa Agriculture Secretary Mike Naig. “This is a great opportunity for existing landowners to earn tax credit, and help new farmers establish their own operations.”

On May 21, Reynolds and Lt. Gov. Adam Gregg were hosted at the Holub Land Farms in rural Buckingham to sign both House File 768 and House File 778, an act relating to taking capital gains deduction for the sale of real property used in a farming business.

There are more than 86,000 farms in Iowa but fewer than 15,000 young farmers, according to the 2017 Census of Agriculture. “With the average of Iowa farmers being 62 (years old), this bill hands down Iowa’s agricultural assets to the next Iowa farmers,” Reynolds said.

“H.F. 778 expands the availability of capital gains and exceptions that will be realized on the sale of property in the farming business.”

Under H.F. 768, the Iowa Finance Authority (IFA) may issue up to $12 million in tax credit certificates each tax year, an increase from $6 million under 2018 law.

According to Chapter 16 of Iowa Code, a “beginning farmer” is an individual, partnership, family farm corporation, or family farm LLC with a low or moderate net worth that engages in farming or wishes to engage in farming, which, for 2019, has been set by the Iowa Finance Authority (IFA) at $680,590.

In addition, cash rent, commodity share and flex leases to beginning farmers qualify for the credit, which is equal to 5 percent and 15 percent, respectively, of the lease payment. Moreover, up to $12 million in tax credits will be available each year to landowners who lease to beginning farmers.

However, the $7.9 million in agreements that existed as of the end of calendar year 2018 are not included as part of the new $12 million cap.

Although the IFA will retain oversight of the program, the bill requires the agricultural development board to designate one of its members to serve on the IFA’s board of directors, according to Iowa State University’s Center for Agricultural Law and Taxation. That board is also tasked with reviewing and recommending approval of applications for the tax credit.

In addition, a “qualified beginning farmer” with whom the lease agreement is executed must also meet all of the following conditions:

•Be an individual, a partnership, a family farm corporation, or a family farm LLC

•Be a resident of Iowa (i.e., all partners of a partnership must be residents of the state)

•Have sufficient education, training, or experience in farming (i.e., at least one partner in a partnership who is not a minor must meet this requirement)

•Have access to adequate working capital and production items

•Materially and substantially participate in farming (i.e., at least one non-minor partner must meet this test)

•Not own more than a 10 percent ownership interest in an agricultural asset included in the agreement

The law also provides that any approved application for the agricultural asset transfer tax credit is deemed an approved application under the beginning farmer tax credit program. This would allow a taxpayer who claimed a tax credit under the agricultural assets transfer tax credit and its associated (now repealed) custom farming contract tax credit to continue to carry over the respective tax credits for the remaining 10 years, or the depletion of the tax credit.

The bill takes effect upon enactment and applies retroactively to Jan. 1, 2019, to tax years beginning on or after that date.

In April, Ohio state Reps. Susan Manchester (R-Waynesfield) and John Patterson (D-Jefferson) introduced House Bill 183, legislation that will allow income tax credits for established Ohio farmers that sell or rent agricultural land, livestock, facilities, or equipment to beginning farmers who participate in a financial management program.

“The bill incentivizes retiring farmers to seek out those who would succeed them in return for narrow and targeted tax credits,” Patterson said. “The bill is an attempt to address one of the most challenging issues facing our farm families today – succession.”

Manchester said, “The Beginning Farmer Tax Credit Program will not only bring the next generation of Ohio farmers into the agriculture industry, but will also ease the financial burden placed on retiring farmers.”