If you are a landlord in Iowa who rents land to an eligible beginning farmer, you can receive a tax credit on your 2015 Iowa income tax. October 1 is the deadline to apply. The tenant must be a resident of Iowa, and be at least 18 years old and have a net worth of less than $703,000.
"If you're thinking about applying for the tax credit, get your application in now," advises Steve Ferguson, program specialist for the Iowa Agricultural Development Division of the Iowa Finance Authority. That's the state agency which has beginning farmer loan programs and tax credit programs available. "You must submit your completed application to us no later than October 1 to be eligible to receive the tax credit for the current year," he adds.
Iowa has several such programs to help beginning farmers
The IADD has four main programs to assist beginning farmers in obtaining the capital they need to pursue a career in production agriculture. These programs do this by providing incentives to retiring or retired landowners. The programs are the Beginning Farmer Loan Program, Loan Participation Program, Beginning Farmer Tax Credit (BFTC) and Beginning Farmer Custom Farming (BFCF) tax credit.
The BFTC and BFCF programs provide tax credit incentives for landowners and property owners who lease to a beginning farmer or who custom-hire a beginning farmer. Deadline to apply for these two programs is October 1 for the BFTC and December 1 for the BFCF. However, it's a good idea to get started now, to finish before the deadline to submit your completed application, says Ferguson.
For all four programs, the beginning farmer must: 1) be at least 18 years of age; 2) be a resident of Iowa; 3) have a net worth of less than $703,844. This net worth requirement is for 2015. It changes on January 1 each year. "The beginning farmer must also do the work on the farm," says Ferguson. "They can't rent the farm out or hire someone to do the work. Those are the basic rules for all four of our IADD programs."
Incentive for retired or retiring landowners to rent to beginners
By participating in the BFTC program, landowners can receive a 7% tax credit off their Iowa income tax for the amount of the cash rent. BFTC offers a 17% tax credit for crop-share leases. For the BFCF program, the 7% tax credit is on the amount paid for the custom farming. Both programs, BFTC and BFCF, offer an additional 1% credit the first year if the beginning farmer is a military veteran. With BFTC you must have a two- to five-year lease.
Along with the application for programs, the beginning farmer is required to submit a financial statement. The statement must be less than 30 days old from the date IADD receives it, and it must be signed by the party who helped prepare it: either a certified public accountant, FSA program specialist or a banker.
Either a crop share lease or a cash rent lease will work
Also included with the application should be a background letter and an FSA Form 156 showing the beginning farmer as operator, the asset owner's name and location of the farm. In the background letter, the arrangement for equipment use can be explained. For example, this letter could say the beginning farmer will trade labor for use of someone's machinery, or the machinery is rented by the beginning farmer.
For BFTC, leasing from family members, even a mom or dad, is allowed. "A crop share lease or a cash lease will work with immediate family members or anyone," explains Ferguson. "They just can't rent from their own corporation. However, the custom-farming tax credit cannot be used by closely-related family members. Also, if the mom or dad leases the land to a son or daughter, that son or daughter has to do all the work on the leased land."
Excess tax credit can be carried over for the next 10 years
The programs have maximum amounts of tax credit that can be awarded. In 2014 the Iowa Legislature established an annual $50,000 maximum per applicant and application. But if the tax credit through these programs equates to more than your state income tax, the excess credit can be carried over for the next 10 years.