Iowa Cuts Funding for Beginning Farmer Tax Credit

Due to a decrease in funding, there will be no beginning farmer tax credit applications available for 2018. Information on 2019 applications will be posted in late 2018 or early 2019. Due to the decreased funding, it’s very important to get your application in as soon as the 2019 applications become available.


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Iowa Beginning Farmer Tax Credit Program

Iowa has a special tax credit for landlords that work with beginning farmers. The tax credit varies depending on the type of lease agreement, but it can provide a significant benefit if the lessee qualifies as a beginning farmer. Qualifications for a beginning farmer for 2016 tax credit include:

  1. Maximum net worth of $672,171.
  2. Must be a resident of Iowa.
  3. Have sufficient training, education, and experience to know how to farm.
  4. Have access to capital, equipment, and livestock as needed.
  5. Must be the one doing the farming.
  6. Have financial risk for the operation.
  7. Cannot sublease the qualifying lease to someone else.
  8. Eligibility will continue if the beginning farmer’s net worth crosses the threshold during the term of the lease.

Eligible property for claiming a credit includes:

  1. Land.
  2. Equipment used for farming.
  3. Breeding livestock.
  4. The aforementioned assets must be in Iowa.

Types of qualifying leases include:

  1. Cash rent lease (credit is 7% of cash rent paid).
  2. Crop share lease (credit is 17% of county T-yield x Share % x RMA fall price).
  3. Flex leases (may calculate at either 7% or 17% depending on whether lease is closer to cash or share agreement).
  4. Leases must be a minimum of 2 years and a maximum of 5 years.

Click here for the official Iowa Finance Authority page on the Beginning Farmer Tax Credit. They have links to the program summary, application, and details of qualifications. Steve Ferguson is an excellent resource for all of your questions on Iowa Finance Authority beginning farmer programs.

This post is an updated version of a post that I wrote for my firm’s blog here.

Grow Long-Term Capital Gains while Growing Your Herd

Farmers and ranchers have big decisions to make when growing their operations. One of the decisions that can have a long lasting business and cash flow impact is the way you grow your breeding herd.

There are basically two options for growing your herd: buying breeding stock or retaining your own stock. If you have other business reasons for purchasing outside stock, please don’t let this article persuade you otherwise. However, if you’re on the fence about buying vs retaining, let’s see how that can have additional benefits.

Benefits of retaining your own stock:

  • An animal retained and not sold reduces income on the Schedule F
  • If the Schedule F net income is a positive number, this also reduces self-employment tax (with no concern about Congress passing pesky depreciation updates – late in the year)
  • The feeding and preparation of the animal for the breeding herd is a currently deductible operating expense (for a cash basis farmer)
  • When the retained animal is culled from the herd, the entire sale price is a long-term capital gain and not subject to self-employment tax
  • Opportunity to hand pick the offspring of animals that you already enjoy working with due to ease of birthing, positive disposition, and quality of offspring

Another idea for a farmer looking to improve genetics while reaping the benefits of retaining their own stock is to consider an artificial insemination program for the herd.

The link to the article below has good information about the costs and benefits of artificial insemination for a cow herd. Artificial Insemination (AI) vs. Owning a bull

Yet another idea that I have come across for maximizing long-term capital gain potential in your herd is to buy the animals younger and pay for the feed out period. If you are purchasing breeding stock from a particular producer, contract to purchase the stock at the earliest age possible and pay the producer for feed and yardage if you don’t take physical possession immediately.

This post is an updated version of a post that I wrote for my firm’s blog here.