How four Midwestern states changed tax policy or began grant programs in 2022 to help farmers start up, recover or retire

December 15, 2022

Ohio: New tax credits target help for beginning and retiring farmers

Ohio has joined the list of Midwestern states that use tax incentives to help beginning farmers. For these individuals, the state is offering a tax credit to offset the costs of participating in a financial management program.

But Ohio Rep. Susan Manchester notes the recently enacted HB 95 isn’t just for individuals starting their agricultural careers; generations that came before them will benefit as well. That’s because a provision in the law offers an income tax credit to a business or individual who sells or rents farmland, livestock, buildings or equipment to them. “The legislation was designed [in part] for those farmers who are ready for their retirement, facing a big capital gains tax if they sell the farm or equipment,” says Manchester, a sponsor of the bipartisan legislation.

The program will run for five years, with the total amount of tax credits capped at $10 million. Manchester says these limits will allow for an analysis of HB 95’s effectiveness before any extension of the program. “There are so many barriers to beginning and successfully managing a farm today; this is just one step to helping preserve the legacy of Ohio’s family farms,” Manchester says. The credit is equal to 3.99 percent of the sales price or gross rental income. (The credit is 3.99 percent because that is Ohio’s highest tax rate.)

Here are other examples of state-level help for beginning farmers.

  • Nebraska’s Beginning Farmer Tax Credit program is the longest-standing program of its kind in the Midwest; it began in 1999 and provides a tax credit equal to 10 percent of the cash rent or 15 percent of the value of the crop-share rent for three years.
  • In 2007, Iowa established a 5 percent tax credit for cash rent leases and a 15 percent credit for crop-share leases.
  • Minnesota provides a tax credit of 5 percent of the sale price, 10 percent of the cash rent income or 15 percent of a cash-share agreement. The Minnesota program started in 2018.

Minnesota: $500,000 grant program provides down-payment assistance for beginning farmers

With this year’s passage of HF 3420, the Minnesota Legislature is appropriating a total of $500,000 in FY 2023 in down-payment assistance — through a grant program (up to $15,000 per recipient) for first-time Minnesota farm owners earning less than $250,000 per year in agricultural sales.

Only individuals (not LLCs or partnerships) that provide the majority of labor and management on the farm are eligible.

“It’s a capital-intensive business, and for people who don’t come from a family farm in particular, it can be difficult to get started,” notes Minnesota Rep. Paul Anderson, a longtime agriculture producer himself.

In exchange for the grant, an individual is expected to match it and to farm the purchased land for a minimum of five years. Nearly all Minnesota farmers are White, with an average age of 56. The down-payment program aims in part to bring more diversity to the farm sector and help younger people become farmers; that is why only smaller-scale farmers are eligible for the $15,000 grant. That amount will be significant for someone growing specialty crops such as vegetables or berries (as opposed to row-crop or livestock producers).

Kansas: Legislators adopt new sales tax exemption to aid in fencing repair, replacement

In December 2021, western Kansas experienced strong winds that toppled power lines, sparking wildfires that damaged more than 163,000 acres. Under the state’s law at the time, legislators would have to take proactive action to help farmers recover from natural disasters like this one by offering tax assistance related to the repair or replacement of fencing. 

The initial idea of Kansas Sen. Elaine Bowers and others: Amend statutory language so that this sales tax exemption applied to all future natural disasters. (Future legislative action would not be needed.)

Bowers says the reach of the measure expanded during Senate deliberations. 

Under the final agreed-upon version (signed into law as part of the broader HB 2239), all sales of tangible property and services used to build or repair any fence enclosing agricultural land is now exempt from the state sales tax. 

Iowa: For retired farmers, state offers new tax exemption on income from renting or leasing land

Iowa’s HF 2317, signed into law in March 2022, made headlines for gradually moving the state to a flat income tax rate. The measure also exempted net capital gains on the sale of employee-awarded capital stock.

For farmers, too, the new law included targeted tax relief.

“[It’s] part of efforts to make government more effective and efficient, while providing benefits to rural residents,” Iowa Sen. Ken Rozenboom says. “For the third time in recent years, we have lowered taxes, and this new legislation provides farmers with an opportunity for tax exemption in retirement.”

With HF 2317 in place, retired farmers can exempt the income they receive from renting out or leasing farmland. A person must be 55 or older and no longer actively farming. He or she also must have owned the property and been active in the farming business for at least 10 years. (Farmers operating as a partnership, LLC or corporation may not claim the exemption.)

As state Rep. Lee Hein notes, the inclusion of this statutory language address the needs of “farmers whose land serves as their retirement.”

Separate provisions in HF 2317 help other Iowa retirees, through the elimination of taxes on income from pensions and retirement accounts, for example, and the capital gains exemption. The new law also modified an existing capital gains income exemption that applies to farmers when they sell property or cattle, horses or breeding livestock. (Individuals may not claim both the capital gains exemption and the farm lease exemption.)