For established landowners, helping a new farmer or rancher can take many forms and offer a variety of monetary, social, and personal rewards.
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.
The Beginning Farmer Tax Credit Program provides a direct credit from the State of Nebraska (a similar program is also available in Iowa) to individuals who rent agricultural assets (land, facilities, breeding stock, and equipment) to a new farmer.
The tax credit incentives to landowners:
- 10 percent of rental income for cash rentals
- 15 percent of the cash equivalent of share rentals
- involve rental of land or equipment to a new farmer without a landowner stake in crops
- low risk for landowners
- more difficult for new farmers and ranchers
- provide for sharing of expenses and risks between the landowner and the tenant
- especially beneficial to new farmers/ranchers
- shared risk between landowner and new farmer
For a landowner to be eligible for a Nebraska tax credit under this program, the new farmer/rancher lessee must have a net worth less than $200,000. The new farmer 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.
Cash rental example: A beginning farmer leases 300 acres of crop ground for $150 per acre. This totals $45,000 in rental income to the landowner and would result in a state tax savings of $4,500 ($45,000 x 10 percent).
Share rental example: 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 $14,175 ($94,500 x 15 percent).
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.
Since the early 1980s, 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.
NIFA loan proceeds may only be used for an agricultural purpose in Nebraska.
Negotiating a Tax-exempt Loan
Once a qualified borrower finds a lender, interest income on the loan is tax-exempt to the lender (both federally and Nebraska state), thus enabling the lender to offer the borrower a reduced interest rate.
- Interest rate and all other loan terms are negotiated purely between the borrower and lender
- Lender’s interest rate offered to the borrower must be below the normal interest rate
- Anyone can lend - a lending institution such as a bank, a private seller-lender using a land contract, or a private investor lender
- Loan cannot go beyond 30 years
Beginning farmer/rancher definition and requirements
- Must materially and substantially participate in the agricultural operation
- Must be over 19 years of age
- No experience requirements
- Net worth cannot exceed $500,000
- 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. Substantial farmland refers purely to land used for an agricultural purpose. The value of a homestead on an acreage, for example, is not held against the borrower in comparing to previous ownership limits.
- Borrower’s main or sole source of income may come from sources other than agriculture
Reduced interest rate
Using NIFA’s program, the borrower can receive a reduced interest rate on:
- up to $469,200 for land or permanent agricultural improvements to the land
- 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 must be financed in a separate loan at the lender’s normal rate. Loan proceeds must go solely to the benefit of the borrower (the loan must be made to an individual borrower/spouse), not to a partnership or corporation.
Find out more
Going through the NIFA Beginning Farmer/Rancher Program can take as little as 30 to 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, contact Dudley Beyer at NIFA, or call NIFA at 800.204.6432.
To read more on retirement options, estate planning and tax considerations, click here.
For more information on other beginning farmer/rancher finance programs nationwide, click here.
Interested in tax incentives in Iowa? Learn more about Iowa’s programs (515.281.6444)
If you are seriously considering helping a beginning farmer or working with an existing farmer or land owner and would like to discuss your circumstances to offer a winning situation for all parties involved, please contact the Center for Rural Affairs. An initial consultation is free and in-depth strategy sessions can be arranged on a fee basis. Contact Wyatt Fraas, firstname.lastname@example.org for more information.