As a beginner farmer, it can be difficult to get enough capital to start your operation. New farmers can buy used equipment or rent land, machinery or buildings from established farmers until they are able to buy their own. The Iowa Finance Authority offers a program to incentivize established farmers to help beginning farmers in their endeavors, called the Beginning Farmer Tax Credit.
The Beginning Farmer Tax Credit Program provides a tax credit to Iowa asset owners when they lease their assets to beginning farmers. Applicants must be Iowa residents, at least 18 years old, and have a net worth of no more than $737,000.
Applicants must also have sufficient education, training, and experience for the intended farming operations, have sufficient working capital to operate the farm, and be the owner and operator of the farm for which they are applying. There are no restrictions for off-farm sources of income.
“I get a lot of calls from a lot of states asking us to help us get this program,” says Steve Ferguson, executive director of the Iowa Finance Authority. “It’s a great incentive program to help a beginning farmer rent farmland from a landlord in Iowa, because the landlord is going to get a tax credit to reduce their income tax in the state of Iowa.”
Leases must exist for a minimum of two years and a maximum of five years, and leases must include land in addition to any machinery, building or equipment.
For the seasoned farmer, there are a variety of tax credit benefits depending on the type of lease agreement. For cash leases, the tax credit is equal to 5% of the cash rent, and the agreed cash rent cannot exceed more than 30% of the county’s average cash rent. For a sharecropping lease, the tax credit is 15%.
The Iowa Finance Authority can issue up to $12 million in tax credits a year, and Ferguson says they haven’t come close to that number since the program’s inception in 2007.
Applications are accepted until August 1 or until all tax credit applications have been granted.
“You can submit a change request and we’ll approve the changes, but we can only approve changes that are beneficial to the beginning farmer,” says Ferguson. “Obviously, increasing the cash rent is not a benefit to the beginning farmer.”