Tax Incentive Programs for Working with Beginning Farmers or Ranchers in Nebraska

Helping a beginning farmer or rancher can take many shapes and offer a variety of rewards monetarily, socially, and personally. Our goal is to help you weigh your circumstances and resources along with outside tools available to you so that together we can foster a new generation of farmers and ranchers.

In Nebraska there are two specific tax incentive programs to motivate farm and ranch owners to provide an opportunity to a beginning farmer or rancher. These two programs can be used in succession with one another to provide maximum benefit to the farm or ranch owner.

Beginning Farmer Tax Credit Program
The Beginning Farmer Tax Credit Program provides a direct credit from the State of Nebraska to individuals who rent agricultural assets (land, facilities, breeding stock, and equipment) to a beginning farmer.

The tax credit incentive to landowners who rent to qualified beginning farmers/ranchers has been increased to 10 percent of rental income for cash rentals and 15 percent of the cash equivalent of share rentals.

Share rentals typically provide for sharing of expenses and risks between the landowner and the tenant. They are especially beneficial to beginning farmers/ranchers, but result in somewhat greater risks for the landowners.

To be eligible, a beginning farmer/rancher in Nebraska cannot have a net worth above $200,000 (up from $100,000 in the original 1999 legislation). The beginner must also be a legal resident, demonstrate adequate farming or livestock production experience, and provide a majority of the day-to-day physical labor and management of the operation. Additional requirements can be found on the web at http://www.agr.state.ne.us/division/med/begfrm.htm.

Here is how the tax credit would work for a landowner in Nebraska: A beginning farmer leases 300 acres of crop ground for $150 per acre. This totals $45,000 in rental income to the landowner, but would result in a state tax savings of $4,500 ($45,000 x 10%).

A share agreement example might look something like this: A beginning farmer/rancher leases 300 acres of crop ground on a 50/50 share basis. Corn is raised on the land, yielding 180 bushels per acre. Total crop amounts to 54,000 bushels. The owner's share of the crop is 27,000 bushels. The crop is sold for $3.50 per bushel. The owner's share of the income is $94,500. The result would be a tax credit to the landowner of $4,725 ($94,500 x 15%).

This program can be used prior to using the Aggie bond program offered by the Nebraska Investment Finance Authority described below.

If you are already renting to a beginning farmer, we encourage you to consider this program. The approval board meets quarterly to approve all applications. You can modify any current lease arrangements for approval by the board within your tax year and qualify for the credit now.

For more information on the beginning farmer/rancher tax credit programs, please contact the Nebraska Department of Agriculture: http://www.agr.state.ne.us/division/med/begfrm.htm

Nebraska Investment Finance Authority Aggie Bond
Since the early 80’s the Nebraska Investment Finance Authority (NIFA) has been assisting agricultural Nebraska with its Beginning Farmer/Rancher Program. NIFA’s program is for purchase of agricultural real and personal property.

Agricultural Purpose Only
NIFA loan proceeds need to be used for an agricultural purpose in Nebraska, and the borrower must materially and substantially participate in the agricultural operation. Unlike some other agricultural assistance programs, though, there are no age (other than being at least 19) or experience requirements. The borrower’s main or sole source of income doesn’t need to come from agriculture.

Interest Is Tax-Exempt
If a borrower can find his/her own lender and can meet the program definition of a beginning farmer or rancher, interest income on the loan will be tax-exempt (both federally and Nebraska state) to the lender, thus enabling the lender to offer the borrower a reduced interest rate.

That rate and all other loan terms are negotiated purely between the borrower and lender. The loan cannot go beyond 30 years, and the lender’s interest rate offered to the borrower has to be below the normal interest rate. Anyone can be the lender: a lending institution such as a bank, a private seller-lender using a land contract, or a private investor lender.

Beginning Farmer Definition
For borrowers to be defined as beginning farmers or ranchers, their net worth cannot be greater than $500,000 and they cannot already own substantial farmland.

Substantial farmland is defined as greater than 30 percent of the farm median size for the county the land is in, or at any time valued at greater than $125,000. Acre size limits are based on census data, are periodically updated, and are listed in the NIFA program information.

This is referring purely to land used for an agricultural purpose. The value of a homestead on an acreage, for example, is not something that’s held against the borrower in comparing to previous ownership limits.

Reduced Interest Rate
Using NIFA’s program, the borrower can receive a reduced interest rate on up to $250,000 for land or permanent agricultural improvements to the land, and on up to $62,500 for used equipment/machinery or breeding livestock.

The purchase price of the deal may be greater than these amounts, but the amount that exceeds these limits would be financed in a separate loan at the lender’s normal rate. Loan proceeds must be going solely to the benefit of the borrower (the loan must be made to an individual borrower/spouse) and not to a partnership or corporation.

Find Out More
Going through the NIFA Beginning Farmer/Rancher Program can take as little as 30-45 days, depending on when an application is submitted in relation to NIFA’s regularly scheduled Board of Director’s meeting to pass the bond resolution. For more information, visit the NIFA website or contact Dudley Beyer at NIFA, dudley.beyer@nifa.org.