Minnesota’s Beginning Farmer Tax Credit — a program that began in 2018, encouraging landowners to lease or sell land, livestock or equipment to beginning farmers by offering them an annual state tax credit — seems to be a leader compared to other beginning farmer programs nationwide.
A survey of program participants, conducted by Indiana University, showed that the program has resulted in an increase in people selling or leasing land to beginning farmers.
The same survey was also sent participants of similar programs in Nebraska and Iowa. The researchers found that Minnesota’s tax credit program is ahead of the curve, because it incentivizes sales, unlike those other two states, said Marie O’Neill, a food systems researcher at Indiana University.
In 2022, 643 asset owners received a tax credit through the program and 393 beginning farmers were involved in those exchanges, according to the Minnesota Department of Agriculture (MDA). A vast majority of the tax credits were given for lease transactions, with 14% of the tax credit applications being for sales, but making up 42% of the dollar amount, according to Jenny Heck, who works in the Rural Finance Authority within MDA.
The state has $6.5 million in the program for 2023. After that, each year through 2030, $4 million will be allocated. Heck anticipates the program might run out of money this year – as demand will surpass the $4 million.
In the program’s first couple of years from 2018 to 2020, the number of participating asset owners increased from 440 to 633. Heck said that in more recent years, the number asset owner participants plateaued in the 600’s.
Matthew Hubrich, a farmer in Renville County, has been able to participate for multiple years in the program by getting the landowner that he leases from to participate.
Hubrich said when the program started, he “really needed it” and while at first it was challenging to get buy-in from asset owners, it is now something that asset owners gravitate toward.
POSITIVES
Hubrich sees the tax credit as a win for both parties, especially landowners who are towards the ends of their careers and now have more tax liabilities.
“This lessens the blow. And anytime they can lessen the blow when it comes to tax season, oh man, they are all in. You’ve got their attention,” he said.
And for him, that incentive has allowed him to keep acres, giving him an opportunity to make his business more profitable.
“I can’t say that (the program) is the one thing that kept me alive. It’s a whole bucket of things that you got to do to stay alive in this business. But it certainly helped. Because if you’re not covering acres, you’re not spreading your expensive inputs across enough,” Hubrich said. “Say if I had that landowner say ‘Nope, not gonna work,’ and that was the case a few years back; It just sets you back. It’s like two steps back and then you try to figure out how can I take three steps forward, but if you just keep this healthy relationship and this program, it attracts that asset owner to pair it up with a guy that’s or a gal that’s starting in this occupation.”
Minnesota’s program made some adjustments this year to further incentivize sales. Tax credits for sales now are at 8% or 12% depending on whether it is sold to an emerging farmer, instead of the 5% that it used to be. Land can now also be sold to family members – and the landowner can get a tax credit. Heck said she’s already noticing that there are more applications for sales compared to past years.
And Minnesota is a leader in incentivizing land sales, O’Neill said.
“I think that was a really big deal because when you’re talking about actual land transfer, leasing isn’t necessarily the answer. So incentivizing the actual sale of land, I think was a boom in Minnesota,” O’Neill said.
The survey found that of the 151 asset owners who responded, just under 60% said because of the tax credit they leased or sold to a beginning farmer. Sixty-one percent of total respondents with rental transactions said they had not worked with that asset owner or beginning farmer before, while 39% had already rented to/from them.
DRAWBACK
O’Neill says a drawback of the program is that it doesn’t exactly get at reducing some of the barriers to entry in the industry.
“That question of like, ‘Did this program really tilt the needle in terms of like whether or not I was able to access this land?’” she said. “We found that in a lot of cases, beginning farmers and landowners were already working together before they even participated in the tax credit. It’s not necessarily inspiring new relationships between people.”
Hubrich, for example, was able to stay with his landlord and just re-negotiate their lease to include this tax credit. He also grew up on a farm and had some familiarity with the area.
For someone with no farming connections yet, this tax credit might not be the most useful program, O’Neill said.
“I think the beginning farmer tax credits really serve people who already live in rural areas and are already connected in these rural areas to landowners. Versus someone who, for example, lives in Minneapolis and decides that they want to farm all the way in Western Minnesota. How do you even start to find a landowner who would lease their land to you? The beginning farmer tax credit definitely serves people who are more connected and have a stronger background in agriculture,” O’Neill said.
But even still, the survey found that one in five of Minnesota participants do not have a background in agriculture, which is not true of the participants in Iowa and Nebraska, who mostly come from farming families.
To qualify for the program in Minnesota, a farmer’s net worth must be under $979,000 and must have been farming for less than 10 years. Other states, like Iowa, only have a net worth cap – not an experience definition.
Because of that, O’Neill said Iowa has a lot of participation in the program because more people qualify compared to Minnesota. Also, in Nebraska and Iowa, sales do not qualify for tax credits, she said.
HOLISTIC LOOK AT PROGRAM
At the Upper Midwest Farmland Summit for farmers last month, Heck, O’Neill and Stu Lourey, the government relations director of the Minnesota Farmers Union, hosted a panel where they talked about the various land access policies that exist – and potential improvements for which they’re advocating.
There are currently six states that have beginning farmer tax credits: Nebraska, Kentucky, Minnesota, Ohio, Iowa and Pennsylvania.
O’Neill and the research team at Indiana University in partnership with American Farmland Trust conducted the surveys to track what’s working across these various states’ programs and what wasn’t – as part of a USDA-funded assessment of land access incentive policies nationwide.
“No one had really taken a really good look at these programs that are serving beginning farmers, even though some of them have existed for over 20 years. At this point, there’s not been a really fundamental analysis of how these programs are working and who they’re serving and whether or not they’re meeting their goals,” O’Neill said.
Now that they’ve done the research, the results are mixed. When asked if the program has been effective, O’Neill replied “I think it really depends who you ask.”
O’Neill said that Minnesota’s Beginning Farmer Tax Credit has operated in the way it was intended to do. MDA is putting resources towards other issues, like improving land access to people who are less familiar with farming – through other programs, like the Emerging Farmers Technical Assistance Grant or the Down Payment Assistance Grant. The latter has previously had very high demand. Heck said in the first round of applications for the down payment assistance grant, the applications exceeded the funding available in the first 10-minutes of it being open.
One criticism people have heard of the tax credit is who it goes to – meaning why doesn’t the immediate benefit go into the hands of the beginning farmer?
Lourey said during the panel that while the incentive goes to the landowner, that’s because a tax credit wouldn’t be as beneficial for a grower – since taxes might not be the economic strain they’re facing.
“The intent is to inspire these transactions. To get folks to sell land,” Lourey said. “In our tax policy we really incent hanging on to land. You really get big tax credit if you hang on to land until you die and then and then then you can pass it on to your kids. So how do we move that tax credit up sooner and incent folks to pass on land (to) folks who want to work the land?”
Overwhelmingly, it seems farmers, like Hubrich, were appreciative of the tax credit. Around 70% of respondents to the survey said that they felt the program helped them market themselves to the asset owner or landowner.
THE FUTURE
Another change being made this year, is setting aside 50% of the funds for emerging farmers – defined as farmers or aspiring farmers who are women, veterans, persons with disabilities, American Indian or Alaskan Natives, members of a community of color, 35 and younger, LGBTQIA+ or from urban areas.
The survey found that about 97% of the respondents were white, 2% were American Indian/Alaska Native and 1% were Black. It also showed that 80% of them grew up on a farm, while 20% of them did not – and that a vast majority (94%) of the respondents were male and 6% were female.
While O’Neill says there may be other ways to make farming more accessible to more emerging farmers – she thinks Minnesota’s Beginning Farmer program is certainly steps in the right direction and a leader to other states.
“I think that Minnesota is doing really well. In Indiana, we don’t have anything. We’re similar to Wisconsin in that we have nothing that really supports beginning farmers outside of federal programs,” she said. “While it (the program) is easy to critique because it’s not serving the diversified group of farmers and it’s serving people who might be farming anyway, and it’s only incentivizing relationships that already exist and all of these things, it’s kind of like, ‘Well, the challenge of land access for beginning farmers is so big and there’s so many different stakeholders involved that if you’re doing anything, I think it’s certainly better than doing nothing.’”
