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State groups lobby feds for tax changes to aid new farmers

  • A farm in Wendell. Recorder file photo



Recorder Staff
Monday, November 13, 2017

In the midst of a proposed overhaul of federal tax laws, three agricultural groups are promoting changes that would help aging farmers sell their farms to younger farmers without stiff capital gains tax penalties.

American Farmland Trust, Land for Good and the National Young Farmers Coalition have proposed reforms that they say would help transfer of agricultural land now being farmed by aging farmers who plan to retire without heirs interested in taking over to young, beginning, and minority farmers and veterans.

A capital gains exclusion they propose would promote sale of farmland to younger farmers trying to access land or to veterans or socially or financially disadvantaged farmers who could keep the land in production, the groups say.

Farmers age 65 and older operate 30 percent of the farms in Massachusetts, and only 8 percent of those 2,333 farmers have someone under 45 managing the farm with them, according to a 2016 report by American Farmland Trust and Land for Good, a Keene, N.H.-based organization specializing in farmland access, tenure and transfer.

As a result, more than 370 million acres of agricultural land are likely to change hands in the next two decades.

How and to whom this land transfers will impact American agriculture for generations to come, say the two nonprofit organizations, which together with the National Young Farmers Coalition have drafted proposals to change tax policy they say penalizes landowners for selling land during their lifetimes and incentivizes transfers of land through estates.

The capital gains tax of 25 percent — including 20 percent for federal tax and about 5 percent by the states — is a disincentive for any farmer who has owned land over time to sell it to “cash out” for retirement because it’s likely appreciated, says Cris Coffin, policy director of Land for Good. But if they will it to children who aren’t interested in farming, the tax code allows them to sell it with virtually no capital gains tax.

“If you’re leaving it to your kids and they’re not farmers,” she said, “they’re less likely to have a relationship with another farmer, so you’re one more generation removed from the farm. In our view, they would be likely to sell it for the highest price they can get.”

The groups propose a $500,000 per-person capital gains exclusion — or $1 million per couple — to reduce the capital gains on farmland if majority ownership is sold to a farmer who’s starting out, under 45, a veteran, socially disadvantaged or with limited resources.

By reducing or eliminating the tax on land sales, the groups reason, farmers would be more likely to gradually transfer agricultural land to next-generation farmers as they step back from full-time farming and likely to make it more affordable to a new crop of farmers.

“It feels for many farmers and older landowners that they’re kind of backed into a corner if they want to retire and they need to sell land for retirement income,” Coffin says.

Related proposal

A related proposal by the groups would provide for a similar capital gains exclusion for sale of farmland development rights under programs like Massachusetts Agricultural Preservation Restriction program as a way of encouraging more farmers to enter those programs to preserve farmland.

Capital gains tax on such agricultural conservation easements, according to the groups, amounts to 20 percent by the federal Internal Revenue Service and an average of 5 percent by the state revenue departments.

“That could be a huge incentive” for getting more farmers to actively protect farmland, said Richard Hubbard, executive director of the Franklin Land Trust.

Amherst attorney S. Peter Ziomek Jr., who has familiarity with APR transactions, added, “A state level exclusion to match any eventual federal exclusion would be huge for farmers and potential farm purchasers.

In addition to encouraging more farmers to take advantage of conservation easements, Coffin said, sale of those easements could also help farmers reinvest or expand their farm businesses.

Yet Coffin said that while there would likely be Democratic support for the proposed changes, the groups are looking for a Republican champion, since it’s the GOP that’s drafting a tax reform package.

And the 98-year-old American Farm Bureau Federation is more focused on repealing the estate tax, she said, even though fewer than 1 percent of farmers in 2014 were affected by the estate tax because their estates are under the existing threshold.

“While they think this is a good idea, they want to see a repeal of estate tax and reduced capital gains, period,” said Coffin.

The New England Farmers Union, an affiliate of the National Farmers Union, supports the proposed capital gains proposals, according to its president, Roger Noonan.

Although Coffin admitted it could be “an uphill battle,” unless Republican and Farm Bureau support can be found to include these proposals in the tax reform package, Coffin added, it’s key to keeping farmers on the land as older farmers age out.

“Our argument is if you want to help farmers, this is much more valuable to a much larger community of farmers, and it has added benefit that if we want federal policy to be supportive of getting the next generation of farmers on the land, we want older farmers to be incentivized to be transferring land to that next generation. In terms of looking at the tax code and the way they can become farmers, this is far more important than the repeal of the estate tax.”