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Extension > Agricultural Business Management News > New Opportunities for Minnesota Beginning Farmers and Farm Asset Owners Who Want to Help Them

Monday, October 2, 2017

New Opportunities for Minnesota Beginning Farmers and Farm Asset Owners Who Want to Help Them

By Don Nitchie, Extension Educator

Beginning in 2018, there are two new opportunities available which can be very helpful to beginning farmers in Minnesota. These programs are the Beginning Farmer Incentive Credit for existing farm asset owners who rent or sell assets to beginning farmers and the Beginning Farmer Management Credit for the beginning farmer enrolled in an approved farm business management program. These tax credits can reduce an individual’s Minnesota income tax. The programs were created by the Minnesota Legislature during the 2017 Special Session. According to MDA, current legislation funds these programs through 2023.

According to the Minnesota Department of Revenue posting of June 6, 2017, the beginning farmer incentive credit is a tax credit for owners of agricultural assets. Such assets may be land, livestock, facilities, or machinery located in Minnesota. The assets must be sold or rented to a beginning farmer who is not a family member of the asset owner, as defined in the Internal Revenue Code. Seven eligibility requirements are listed for beginning farmers and are listed below. The credit equals 5% of the sale price of the asset (up to $32,000), 10% of the gross cash rental income in each of the first three years of a rental agreement (up to $7,000 per year), or 15% of the cash equivalent of the gross rental income of the first three years of a share-rent agreement (up to $15,000 per year). If the amount of the credit exceeds tax liability, the excess may be carried forward 15 years. Equipment dealers do not qualify for the credit. The total value of credits allocated by the Rural Finance Authority is capped at $5 million for tax year 2018 and $6 million per year in later years. Certificates for the credit will be issued on a first-come first-served basis, but with preference for some re-certifications. The beginning Farmer will need to participate in a farm business management education program.

The beginning farmer management credit is equal to 100% of the cost of participating in a financial management program approved by the Minnesota Rural Finance Authority (up to $1,500 per year). The credit can be taken for three years directly reducing Minnesota Income tax due for the beginning farmer. If the amount of the credit exceeds tax liability, the excess may be carried forward three years.

According to the Minnesota Dept. of Agriculture, A Beginning Farmer is defined as:

  • A Minnesota resident who is seeking entry, or has entered into farming within the last 10 years 
  • A farmer who will provide the majority of the labor and management of the farm that is located in Minnesota 
  • Has adequate experience and knowledge of the type of farming for which they seek assistance from the Rural Finance Authority 
  • Can provide positive projected earnings statements 
  • Is not directly related to the owner of the agricultural asset. This includes parents, grandparents, brothers, sisters, spouses, children, and grandchildren. Legal adoption shall be considered in full effect.  
  • Has a net worth that does not exceed the limit provided under section 41B.03, subdivision 3, paragraph (a), clause (2). Currently this limit is $800,000. 

The beginning farmer will need to participate in an approved financial management program. Costs of financial management programs up to a maximum of $1,500 per year (for up to 3 years) may also be eligible for a tax credit. The financial management credit need not be tied to any agricultural asset sale or rental.

The Rural Finance Authority (RFA) will administer the tax credits by: 1) Certifying beginning farmers; 2) Assisting beginning farmers with locating eligible financial management program options in their area; and 3) Certifying owners of agricultural assets are eligible for the tax credit. This is a first come, first served initiative. The asset owner may be an individual, trust, or a qualified pass-through entity. RFA is in the process of developing application forms to certify participants. These application forms and instructions will soon be posted on their web-site.

The Minnesota Department of Agriculture is also expected to distribute more information in the future. The basic information described above is currently available at www.mda.state.mn.us.  Check this site for additional future information as it becomes available.

These two new efforts will complement existing programs to assist beginning farmers such as the Beginning Farmer Aggie Bond Loan Program and the Beginning Farmer Loan Program. To view information on these programs, visit the MDA website and click on “Funding” and “Loans.”  A scholarship program also exists for any beginning farmer who enrolls in a Farm Business Management Program at one of the Minnesota State system of colleges. Information on this program is available through the MDA website by searching “beginning farmer scholarships.”

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