Whole Farm > Legal & Taxes > Taxes
September 2021
Iowa beginning farmer tax credits and loan programs
Obtaining enough capital to pursue a career in production agriculture can be challenging. The Iowa Ag Development Division (IADD), is a division of the Iowa Finance Authority that may be able to help. A summary of programs available is included below. Further details on specific programs and how to apply can be found on the IADD website.
Beginning Farmer Loan Program (BFLP) The Iowa Beginning Farmer Loan Program assists new farmers in acquiring agricultural property by offering financing at reduced interest rates. Beginning Farmer Loans are financed by participating lenders with the issuance of federal tax-exempt bonds by the Iowa Finance Authority; contract sellers also receive a state tax exemption on the interest income. The tax-exempt interest income earned by lenders and contract sellers enables them to charge borrowers a lower interest rate, which will typically result in about a 25% rate reduction using the program. IADD’s Beginning Farmer loan is often used with the USDA Farm Service Agency (FSA) Direct Farm Ownership Down Payment Loan Program (5/45/50).
For this program, applicants must be below 30% of the county median for land ownership. Eligible projects include land, machinery, equipment, breeding livestock, or farm improvements. The program maximum is adjusted annually and can be found on the IADD website, or by contacting the authors. The loan terms are set by the lender or contract seller.
Loan Participation Program (LPP)
The Loan Participation Program assists low-income farmers to secure loans and make down payments. IADD's participation can be used to supplement the borrower’s down payment, helping a farmer secure a loan more readily. The lender’s risk is also reduced because the IADD provides a "last-in/last-out" loan participation for the financial institution.
Eligible projects include land, machinery, equipment, breeding livestock or farm improvements. Funding is available for up to 30% of the project cost, up to $200,000 with interest rate equal to the Wall Street Journal Prime Rate as of January 1st of the current calendar year; rate to be fixed for the 10 years.
Beginning Farmer Tax Credit Programs (BFTC)
This tax credit program provides an incentive to lease to a beginning farmer in order for the asset owner to receive a tax credit to reduce their state of Iowa income taxes.
Agricultural Assets Transfer Tax CreditThe Agricultural Assets Transfer Tax Credit, commonly referred to as the Beginning Farmer Tax Credit program, allows agricultural asset owners to earn tax credits for leasing their land, equipment, and/or breeding livestock to beginning farmers.
The maximum credit is $50,000 per application with the same asset owner and beginning farmer. Terms include a 5% tax credit for cash rent leases or a 15% tax credit for crop share leases. Lease terms and duration are set by the asset owner but must be a two to five year lease term. Flexible leases may be submitted, but no tax credit is available for the bonus portion of a flexible lease if there are variable factors used to determine the bonus; the asset owner will receive a 5% tax credit on the base cash rent that is stated in the lease.
All tax credit applications must be submitted by August 1 to be considered for that tax year.
More Information
Operating expenses for the IADD are derived from modest application and service fees paid by program participants. The IADD also earns interest from a trust fund, but it does not receive any state tax dollars.
More information on the programs described in this article and how to apply is available at www.iowafinance.com/beginning-farming-programs/.
Steve Ferguson, tax credit program, 515-452-0467, steve.ferguson@iowafinance.com
Tammy Nebola, loan programs, 515-452-0468, tammy.nebola@iowafinance.com
