Tax Benefits & Agricultural Investments

January 31, 2019

It’s tax season, and investors are formulating strategies to earn a notable return in 2019. With the global increase in demand for food, and farmable land area decreasing, many Investors are eyeing agriculture investments, and with good reason. There are several tax benefits to take advantage of as an agricultural investor. Of course, each deal is structured differently, and we can’t list all the secrets here. We have listed a few in the form of common tax advantages associated with Ag Investing, even how former President George W. Bush does it so darn well.

Depreciation (Agricultural)

Most investors are familiar with depreciation from experience with investments in real estate. What does depreciation look like on a farm? The land itself will not depreciate in the eyes of Uncle Sam, but certain crops and varieties, primarily grapes, fruit and nut trees, may qualify for a tax depreciation benefit.

These types of crops only produce in limited cycles and sparsely at all during the initial growth period. Once the fruit and nuts can be harvested for an income, the IRS begins to depreciate the asset under the General Depreciation System (GDS) over a ten-year recovery period. Also Note: capital improvements may be deducted from gross income as depreciation expense. These advantages can be passed on to investors depending on deal structure, crop age, and so on.

Conservation Trusts (Land Designations)

This is how former President George W. Bush got a special tax break for land adjacent to his property, that’s untouched ground, managed specifically for wildlife and hunting. Farmers and investors in agriculture have been doing it too. The purpose of these trusts is preserving the natural ground, ecosystems, and water resources that we often take for granted. When a farmer puts land in a conservation trust, the land remains privately owned. The trust then purchases a conservation easement on the land which inhibits all future development, even to future owners of that land. This protects the land from all future development.

Conservation easements offer many tax advantages. In certain instances, placing an easement on one’s land may result in property tax savings for the owner. Depending on how a deal is structured, these savings may be passed down to investors as well.

Property Taxes (Finance)

The United States has historically been a proponent of agriculture as a means of economic growth. As such, all fifty states have developed favorable property tax rates for agricultural land to assist farmers in maintaining their claim to the land, as expansion threatens to turn more fields into sub divisions. Many states weigh a farmer’s claim to these benefits by determining the viability of the farm’s economic standing. A low property tax rate can result in a reduced tax liability for investors, depending on the type of deal they invested in. In certain states, these tax exemptions for agricultural land can be very lucrative for farmers and agricultural investors.

Ag Investing is a prudent way to diversify a portfolio against risk. However, it is still an investment with common risks. FarmFundr recommends consulting with a tax adviser and or attorney before making investment decisions.