Many successful business people own homes in the country with significant acreage. If you’re one of these people and you utilize the land for a small farm to raise crops or livestock, you may want to speak with your professional tax advisor to determine whether you are eligible for any farm tax credits under local, state, or federal tax laws. Here are a few tips to making the most of a small farm on your land, and to keep in mind as you discuss opportunities with your tax advisor.
1. Check your local zoning rules.
Before you do anything, make sure your local zoning department allows farming. These zoning requirements typically don’t apply if you’re growing food for you and your family only. But once you start selling the food you grow or the livestock you raise, you may need a special business permit and possibly approval from the health department and other regulatory agencies.
2. Get the details on tax breaks. (They’re different for each state.)
While all 50 states provide tax breaks for agricultural land, their rules may be different, depending on where you live and what you’re farming. To qualify for these tax breaks, most states require you to have a certain amount of land in use, and some require a specific amount in profits, to show that you’re actually in the small farm business.
3. Make sure it’s actually a small farm.
What qualifies as a small farm for tax purposes? In the eyes of the IRS, a small farm must be actively cultivating, operating, or managing land for profit. That could include livestock, poultry, dairy, fish, vegetables, or fruit. On the other hand, a hobby farm — typically a few horses, other livestock, or crops used for leisure and enjoyment — probably won’t qualify for tax breaks.
4. Prove your intention to make a profit.
To qualify as a true farm business, you’ll need to show your intention to make a profit, although you don’t have to actually make a profit each year. The IRS may require you to produce a business plan, profit and loss statements, verification of your bank account, daily activity logs, and financial records showing typical farm expenses and assets. These might include farm machinery purchases, operational costs, vehicle purchases and maintenance, and costs for chemicals, feed, fertilizer, pesticides, salaries, and employee benefits.
5. Think green.
You may qualify for additional tax breaks if you’re willing to give up development rights on your land and donate a conservation easement to a charitable land trust. This could permanently reduce the market value of your property and potentially allow you to claim a deduction on your tax return. You may also be able to tap tax breaks for alternative energy, like using solar panels to generate electricity for your farm. Your tax advisor can provide details on these types of opportunities and other tax breaks for farmers that might be available to you.
This article is not intended as legal or tax advice. You should always seek advice from an independent tax advisor based on your individual circumstances.
"Tax Breaks for Small Farms," Zacks
"Homestead and Small Farm Tax Deductions," Mother Earth News
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