Fort Dodge Messenger, IA
12-09-06
Iowa tax break gives young farmers incentive
By Kristin Danley-Greiner, Messenger correspondent
Tax Credit General Guidelines
• The definition of agricultural asset is stated as agricultural land, depreciable
agricultural property, crops or livestock.
• An eligible taxpayer is one that does not violate that Iowa anti-corporate farming
law or qualify under that provision solely by means of an exemption.
• In order to receive the tax credit, you must execute a written contract (known as
an asset transfer agreement) for the transfer of the assets (lease agreement).
• Asset transfer agreements can be as short as two years or as long as five
years.
• The tax credit is limited to those items addressed in the asset transfer
agreement.
• A copy of the agreement must be included with the application to the IADA. The
credit can only be claimed if the taxpayer has received a tax credit certificate
from the IADA. The certificate must be attached to the taxpayer’s return.
• The tax credit will be issued in the taxpayer’s name for the amount of 5 percent
of a cash contract and 15 percent for a crop or livestock share agreement.
• The credit is available to members of pass-through entities in an amount based
on the member’s pro-rata share of earnings from the entity.
• The amount of the credit is based on the gross amount paid to the taxpayer
under the asset transfer agreement.
• The taxpayer may carry any unused portion of the credit forward for up to five
years, but may not carry the credit back to a prior tax year.
• The credit is non-transferable.
Who qualifies as a beginning farmer
• To be considered a beginning farmer, the prospective tenant must have net
worth of less than $300,000.
• The beginning farmer must also have sufficient education and training to
operate a production operation and actively participate in the management and
labor of the operation.
Starting Jan. 1, 2007, Iowa landowners and young farmers can take advantage
of a new law passed by the state legislation that will offer them a tax break.
The goal of the Iowa beginning farmer tax credit is to provide an economic
incentive to a landowner in a cash rental management arrangement, typically $7
to $8.50 an acre, who rents the land to a qualifying beginning farmer. There’s
also a tax credit benefit for those involved in crop share arrangements, which is
approximately 15 to 16 percent instead of the standard 5 percent.
“Given corn prices right now, the tax credit benefits are significant,” said Jeff
Ward, executive director of the Iowa Ag Development Authority who will be
overseeing this tax credit program. “With the change in control at the federal
government, we might see something similar enacted at the federal level, which
would offer an even bigger tax credit.”
The concept behind Iowa’s beginning farmer tax credit has been circulating for
almost a decade. Ward said it surfaced at the Beginning Farmer Center at Iowa
State University.
“They completed the academic work toward it, but couldn’t drum up enough
legislative interest in it. Then the Iowa State Dairy Association got behind it
almost three years ago and the 2005 legislators actually passed it, but there was
an amendment tacked on dealing with a sales tax rebate on ventilation
equipment for livestock buildings that wasn’t previously exempted and the
governor vetoed it because of that amendment,” Ward said.
When the lobbyists behind this act regrouped last fall, they were assured that the
amendment wouldn’t crop up again, but it did, Ward said.
“This time, the governor signed it, but he waited until the last five minutes of the
last day he could sign it,” Ward said.
Mike Duffy, director of the Beginning Farmer Center, said the tax credit is
important, because it will help out retiring landowners and provide access for
beginning farmers to land at a lower cost. Nebraska has had a similar tax credit
in place for several years, he noted.
“It’s seen as a win-win situation,” Duffy said.
Ward explained that a nine-member board of directors appointed by the state
governor under the Iowa Ag Development Authority will be responsible for
approving applications for the tax credit. Both Ward and Duffy will be helping
disseminate information about the tax credit as it becomes available through their
respective positions and organizations.
Producers are encouraged to continually check the Iowa Ag Development
Authority’s Web site at www.iada.state.ia.us/ to see when applications will be
available and the Beginning Farmer Center’s site at
www.extension.iastate.edu/bfc/ for helpful information.