By Héctor Alejandro Arzate
Access to land is one of the biggest challenges that beginning farmers face. A new program in Missouri joins a nationwide effort to help.
Half an hour from downtown Kansas City, Joe Lau runs his fingers over the leaves of his young soybean crops. He has 24 acres worth of it in this field that should be ready to harvest in about a month and a half.
Lau is a first generation farmer. He decided to try his hand at running his own farming operation around 12 years ago.
Today he rents a few hundred acres throughout northwestern Missouri, where he grows soybeans and corn. But he said it was difficult to find land at first.
“When I got started, I can't tell you how many times I would get turned down by somebody when I'd approached them about renting a farm,” Lau said.
A new tax deduction program in Missouri aims to incentivize older farm owners to pass land to beginners. The new policy allows qualifying owners to deduct the income from renting or selling their land to beginning farmers from their state-adjusted gross income.
The program is part of a growing effort across the Midwest and Great Plains to help new farmers get started as they’re up against high land and equipment prices.
About 1 million of the 3.4 million farmers in the U.S. are beginning farmers, or those who have been farming for 10 years or less, according to the latest census from the U.S. Department of Agriculture. And one of the biggest challenges this growing group faces is access to land, said Denice Ferguson, a field specialist in agricultural business and policy for the University of Missouri Extension.
“There's a really low supply of farmland,” Ferguson said. “Land values are off the charts. Farmland, if it's anywhere near an urban area, it competes with development and a lot of times that just almost prices that land out of the realm for a beginning farmer.”
Meanwhile, the average age of farmers across the country has grown to about 58 years old. Lau said many farmers are concerned about the transition of land.
“When you have so many people owning ground at the age of 70 years old, how's the other person supposed to be able to come in and seamlessly transition?” Lau said. “And that's always the biggest problem, is moving from one generation to the next.”
Encouraging transitions
Several states, including Illinois, Kansas, Nebraska and Iowa, have their own incentive programs to encourage the land transition to younger farmers. Those efforts include loans for beginning farmers – a program that Missouri has as well – and tax credits. But Missouri’s new program is one of the first to offer tax deductions.
Under the new program, Missouri farm owners who enter qualifying rent, lease, or crop-share agreements with beginning farmers can deduct the amount of annual income the owner receives under that agreement up to $25,000 per tax year.
For qualifying land sales, an owner can subtract from their state adjusted gross income the first $2 million of the sale’s capital gains. For capital gains above that amount, the percentage that’s deductible falls incrementally.
Lau no longer qualifies for this beginning farmer program, but his ears perked up when he heard of the rollout. He thinks that older farmers might be more willing to work with less established farmers if they can take advantage of tax breaks.
“To get away without paying capital gains on the first $2 million,” Lau said. “That's impressive.”
Though it’s still in its early days, Ferguson said this program could be a game-changer – especially if similar deduction programs were to popup in nearby states like Kansas, Iowa and Nebraska, too.
“The whole idea is a win-win between both the beginning farmer and the landowner,” Ferguson said.
The need is there, said Kristine Tidgren, a professor at Iowa State University and the director for its Center for Agricultural Law and Taxation. Missouri is not alone when it comes to the challenges that beginning farmers face, even with access to loan programs, she said.
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