Multiple states have tax incentives designed to promote the operation of small farms. The most common incentives are:
Recently, Iowa has also created a subtraction for retirement income earned from leasing farmland.
States with a beginning farmer tax credit include:
The beginning farmer tax credits are designed to help new farmers get started. The credits are available to farmers who lease or sell their agricultural land, buildings, or equipment to beginning farmers. Some of the credits are also available against the corporate income tax.
Each state has a different definition of a beginning farmer. Generally, a beginning farmer is just entering farming or has started in the past 10 years. Several states require that the farmer not be related to the individual claiming the credit.
The amount of the beginning farmer credits vary by state. The amounts are usually:
Most of the state’s place lifetime or yearly caps on the amount of the credit as well.
Other states have bills pending before their legislatures that would create similar credits, including:
Some states allowing a subtraction or rate reduction of capital gains include:
In Iowa and Wisconsin the capital gains exclusion applies to farming business property that is sold to a family member. Iowa requires that the property be held for 10 years before the sale, while Wisconsin only requires one year.
Montana’s subtraction for capital gains is for up to $50,000, on the sale of 80 acres or more to beginning farmers. The sale must be done via a long-term contract approved by the state.
Finally, Oregon allows a lower rate on long term capital gains from the sale of the liquidated assets used in farming. However, the sale cannot be to a person related to the taxpayer.
Finally, Iowa recently enacted a retired farmer lease income subtraction. A retired farmer can subtract income received from a farm tenancy agreement. The farmer must have materially taken part in a farming business for 10 or more years.
However, if excluding the income, the farmer cannot claim the beginning farmer tax credit.
