Incentivizing the Transition: New Law Provides Tax Credits for Landowners and Beginning Farmers

On May 30, 2017, Governor Mark Dayton signed ten budget bills, one of which is an exciting opportunity for Minnesota’s youngest generation of farmers. Minnesota’s farming population is aging; in fact, less than 6% of Minnesota farmers are 35 years old or younger.

The bill, authored by Representative Nels Pierson and Senator Mike Goggin, provides tax credit incentives to support the transition of agricultural land to young and beginning farmers. Landowners can take a credit against the tax due for the sale or rental of agricultural assets to an unrelated beginning farmer equal to:

• 5% the lesser of the sale price or the fair market value of the agricultural asset, up to a maximum of $32,000;
• 10% of the gross rental income in each of the first, second, and third years of a rental agreement, up to a maximum of $7,000 per year; or
• 15% of the cash equivalent of the gross rental income in each year of the first, second, and third years of a share rent agreement, up to a maximum of $10,000 per year.

The bill defines a “beginning farmer” as someone who:

• Is a resident of Minnesota, and who is looking to start farming or has started farming within the last 10 years within the borders of Minnesota;
• Is not and whose spouse is not a family member of the owner of the agricultural assets from whom the beginning farmer is looking to purchase or rent the agricultural assets; and
• Meets certain eligibility requirements, which include:
• Qualifying within a certain net worth bracket, as defined under the bill;
• Proving that the majority of the day-to-day physical labor and management of the farm will be completed by the beginning farmer;
• Demonstrating that s/he has adequate farming experience or knowledge in the type of farming for which s/he seeks assistance through the program;
• Demonstrating a profit potential by submitting projected earnings statements;
• Asserting that farming will be a significant source of income for him or her; and
• Agreeing to notify the Program Authority of any changes in eligibility throughout the three-year certification period.

To qualify for the program, beginning farmers must also enroll in an approved financial management course. The cost of the course may be covered by an additional tax credit of up to $1,500 per year, for up to three years while the beginning farmer is in the program.

Farmers can begin taking advantage of the new tax credits starting in 2018. The bill is funded at $12 million and does impose some annual limits on funding, so the credits are available on a first-come, first-serve basis.

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