The 2019 Iowa Legislature passed a new law updating the state’s Beginning Farmer Tax Credit program. It expands the tax credit and provides increased funding to allow more individuals to participate.
The program offers a state income tax credit for landowners who lease land to qualified beginning farmers using a cash rent, crop share or flex lease agreement.
The new law restores funding for the program to the prior level of $12 million per year, as it had dropped to around $6 million in recent years.
“This is a great opportunity for existing landowners to earn a tax credit and help new farmers establish their own farming operations,” says Steve Ferguson, program specialist for the Agricultural Development Division of the Iowa Finance Authority. “If you wanted to apply last year but couldn’t because the program ran out of funding, you can apply now. As a landlord, you can use this program to reduce your state income tax, but you must apply by Aug. 1. The deadline is in the law. This is a 5% tax credit on cash rent leases, 15% on crop share.”
The tax credit helps landowners make rent more affordable for beginning farmers. Visit iowafinanceauthority.gov for information and how to apply, or call 515-725-4928.
Beginning farmer qualifications
The law defines a “beginning farmer” as an individual, partnership, family farm corporation or family farm limited liability company with a low or moderate net worth that engages in farming or wishes to engage in farming. Cash rent, commodity share and flex leases to beginning farmers qualify a landowner for the credit, which is equal to 5% and 15%, respectively, of the lease payment.
“There is no age limit to qualify,” says Ferguson. “You must be an Iowa resident, at least 18 years of age, and this year your net worth must be less than $680,590. You must be the owner-operator, the person doing the work. You can’t sublease the farm to someone else or hire someone to do the work.”
Also, next year the net worth requirement will change. You must have at least a two-year lease; maximum is five years.
“If it’s a two-year lease and a farmer-tenant comes back to re-apply and his net worth is over the limit, we can’t approve it,” Ferguson says. “If it’s a five-year lease and the farmer’s net worth goes over the limit, the farmer gets to finish the lease.”
Several other key changes to note
There is a maximum number of years an asset owner can participate in the program. Previously, there was no limit. With the new law, the limit is 10 years total. The new application fee to participate is:
- $300 for a lease of 100 acres or less
- $400 for a lease greater than 100 but less than 250 acres
- $500 for a lease of 250 acres or more
The Aug. 1 application deadline is also new.
The lease must include land and may also include equipment or buildings to beginning farmers. The maximum tax credit is $50,000 per taxpayer per year. The cash rent can’t be more than 30% above the average for the county based on Iowa State University’s annual survey.
“You can renegotiate the rent down to the allowable limit, or we will return the application,” Ferguson says. “Also, keep in mind this program is a tax credit for Iowa income tax only, not for federal.”