Minnesota's Beginning Farmer Tax Credit

Growing Future Farmers:

Minnesota's Beginning Farmer Tax Credit

On May 30, 2017, Governor Mark Dayton signed a law authorizing farmland owners to receive a nonrefundable tax credit for leases or selling their land to a qualified beginning farmer.  The law took effect on January 1, 2018.  How might this law help you?

If you're a farmland owner and thinking about retirement, the tax credit can help you offset capital gains tax from a sale of your land.  The credit you can receive is equal to 5% of the sale price or the fair market value (whichever is less) up to $32,000.  You can carry this tax credit forward as well, for up to 15 years, if you do not use it up immediately.

If you own and lease farmland, choosing to lease to a beginning farmer also comes with a tax benefit.  For a cash lease, you can receive up to 10% of the value of the lease up to a maximum of $7,000 per year.  And for a share lease, you can receive up to 15% of the value of the lease up to a maximum of $10,000 per year.

If you're a beginning farmer, these tax incentives can help you get your foot in the door with a landlord or farmland seller.  You'll want to keep in mind the qualifications that you must meet, however.  You must be a Minnesota resident and you must be within the first ten years of your farming career.  You must provide a majority of the labor and management of the farm operation.  You also cannot be closely related to the farmland owner, which means you cannot be siblings or a lineal descendant (child, grandchild).  There is also an asset limit: You cannot have a net worth in excess of $816,800.  In addition, you must be able to demonstrate that you are adequately prepared to farm, you have a business plan showing positive projected earnings, and you have completed or will complete an approved financial management program.  Basically, you should have a solid business plan in hand to qualify, which you should have anyway.

Minnesota is one of only three states that has a beginning farmer tax credit, and it is the only state who extends this credit to farmland sales instead of just leases.  If you're interested in learning more about this credit, check out the Minnesota Department of Agriculture's website or contact me.

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