The Benefits of Soil | Get A Farm Deduction To Minimize Your Tax Burden

Benefits of Soil

Photo Credit: fao.org

The tax benefits of soil AKA “farming” can be significant in many states.  All 50 States give preferential property tax rates to agricultural land in an effort to help farmers and to prevent Urban Sprawl.  Never thought you had the ability to run a farm?  Well who knows, you may discover a passion for it and even better, make a profit.  In Ohio, a “farm” must be at least 10 acres or have produced an average of $2500 over a three-year period.  New Jersey allows you a farm deduction if you have just 5 acres of land ‘devoted to agricultural and/or horticultural use and at least $500 in annual farm sales.  Many millionaires leverage the benefits of soil by satisfying the annual sales quotas by buying their friends and neighbors products.  So make sure to know how much corn and cantalopes to grow in order to sell the required amount to your friends for that tax break.

Never considered farming, not a fan of getting dirt under your fingernails?  Consider buying acreage that you are willing to surrender development rights on.  A great way to gain a tax benefits of soil is to consider donating a conservation easement to a charitable land trust.  By doing this, the easement permanently reduces the market value of your property and you can then claim a deduction on your federal, and often times states, income taxes.

 So here area few choice things to remember when preparing for your ‘settlement with Uncle Sam’ on April 15th if you own a farm. 

To claim farm deductions you have to be able to prove your intention to make a profit. No subsistence farming allowed, meaning the crops you grow or animals you raise are meant to be for sale, not your own consumption.   However, even if you make no money on your farm business, you can still claim deductions if it appears you’re trying to make a profit, or may in the future.  Repairs, maintenance of buildings and tools, cost of fertilizers and lime, land clearing, preparation for planting, erosion control: Money spent for any of these expenses may be deducted.

You may also depreciate (over a number of years) new buildings, equipment, and livestock. The portion of car or truck expenses attributable to farm work is also depreciable.

So put an offer in on that plot of land you drive by everyday, the buyers market continues in most states, so the deals are plentiful, so capitalize on the benefits of soil!

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4 Comments

  1. Jose says:

    Interesting post, I never thought of buying land for the sake of an agricultural tax benefit. I’ve passed up some amazing deals on farm property in the past for various reason and look back at times wishing I had purchased. One was a 90 Acre farm with a beautiful house on it, $170k (12 years ago). That property is now a subdivision. I did toy with the idea of starting a non-profit dedicated to buying woodlands and keeping them in their natural state, but that takes a lot more time and money than I have!

    • Jim says:

      Jose, I hate that you missed out on that opportunity! Not sure where the 90 acres was but there are so many other benefits to owning a farm, outside the tax advantages. Sometimes they can be goldmines if you know what you are looking for. Mature trees for instance are worth so much. Rock can be too. I have a friend in Arkansas who bought 20 acres and was able to harvest pallets after pallets of Arkansas field stone, worth upwards of $30,000!

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