It is no secret that the average age of the Minnesota farmer has steadily increased in recent years. With that in mind, the question of how to incentivize younger generations to start farming has become increasingly prevalent. With high start-up costs and fluctuating markets, getting new farmers in to agriculture is challenging.
However, Minnesota recognized these difficulties and launched the Beginning Farmer Tax Credit (“BFTC”) in 2017. According to the Minnesota Department of Agriculture, the BFTC “provides an annual state tax credit to landlords and sellers who rent or sell farmland, equipment, livestock, and other agricultural assets to beginning farmers.” A beginning farmer is defined as a Minnesota resident who: (1) wants to start farming or has started farming within the last 10 years; (2) provides the majority of labor and management on a farm located in Minnesota; (3) provides positive earnings statements; (4) has a net worth of less than $979,000; and (5) enrolls in or has completed a farm business management program (“FBM”).1 A beginning farmer must apply as an individual, so if the farmer structures their business through a business entity, the farmer must be listed on the lease or sale documents and not their business entity.
Expansion to Tax Credits under the BFTC Program
Under the recent expansion to the BFTC program, landowners are further incentivized to sell land to beginning farmers. Eligible asset owners may claim the tax credit for as many years as the beginning farmer they work with is eligible. Here are the current tax credits available to asset owners under the BFTC:
| Tax Credit Amount | Maximum Tax Credit | |
|---|---|---|
| Cash Rentals | 10% of annual rental income. | $7,000 |
| Share Crop Rentals | 15% of annual rental income. | $10,000 |
| Farmland Sales | 8% of sale price, or 12% if the buyer is an emerging farmer.2 (This is increased from a flat 5% previously.) | $50,000 (increased from $32,000 previously.) |
| All Other Sales (equipment, livestock, etc.) | 5% of sale price. | $32,000 |
Asset owners eligible for the BFTC may be an individual, trust, LLC, LLP, partnership, S-Corp, or other qualified pass-through entity; unfortunately this does not include c-corps. In May 2023, the MDA expanded the eligibility for individuals to include parents, grandparents, and siblings who sell farmland to a direct family member. This does not include non-land sales. This means that for the first time since the creation of the BFTC program, individually owned land can be sold to a direct family member while still taking advantage of the tax credit.
Tax credits are funded on a first come first serve basis so there is no guarantee that the tax credit will be available when you file. Therefore, the MDA recommends applications be submitted early in the year.3 The application for the BFTC is in two parts, requiring both the beginning farmer and the asset owner to submit corresponding applications. More information and the online application portal may be found at: www.mda.state.mn.us/bftc.
If you or your family own farmland individually or through a pass-through entity like an LLC or an LLP, and you know that a younger member of the family is interested in becoming a farmer or purchasing the family farm to take over operations, there is a potential tax credit available to take advantage of. If you have any questions regarding the BFTC program, you are encouraged to call the Minnesota Department of Agriculture, Beginning Farmer Tax Credit phone number: 651-201-6316 or email at mda.bftc@state.mn.us. If you are interested in selling your farmland and have questions on how to facilitate the sale or have questions on how a potential sale may affect your estate plan, there are many attorneys available who specialize in real property transactions and estate planning that would be happy to assist you further.
1 Beginning farmers are eligible for a nonrefundable tax credit equal to their FBM tuition, up to a maximum of $1,500. This tax credit is available for up to three years. Beginning farmers may also request to waive the FBM requirement if they have a 4-year agricultural degree, reasonable work experience in agricultural finance, or have already completed an approved FBM program. Starting in 2023, if a beginning farmer has already completed 30 credits of FBM courses, or the equivalent hours in another FBM course, the beginning farmer does not need to register for additional courses to satisfy the FBM requirement.
2 Emerging Farmers include farmers or aspiring farmers who are women, veterans, persons with disabilities, American Indian or Alaskan Natives, members of a community of color, young (35 and younger), identify as LGBTQIA+, urban (reside in cities with a population over 5,000), and any other emerging farmers as determined by the commissioner.
3 As of the time of publication, the due date for applications under the BFTC for 2023 has passed. The due dates for applications are generally around the same time each year. For reference, the due date for 2023 applications for cash rentals and share crop rentals was July 17, 2023; and the due date for applications for land sales, other sales, and Beginning Farmer FBM tuition reimbursement was November 1, 2023.