Changing Landscape of Farmland Ownership Can Benefit Owners and Community
February 18, 2021
By Kaye Englin, President and CEO
According to a 2017 study by Iowa State University, 60 percent of Iowa farmland is owned by people over the age of 65, and 35 percent of Iowa farmland is owned by those older than 75 years of age. As we enter the 2021 planting season, farmland in Iowa continues to change hands and this transfer is only increasing.
This land and those who farm it have a tremendous connection to, and impact on, our communities. In Iowa, agriculture is of course a major economic engine, providing jobs and contributing to important community resources. It is also a part of who we are as a state and people. This changing of hands is part of a greater transfer of wealth occurring. It has been estimated that over $824 billion is expected to pass from one generation to the next in Iowa over a 50-year period that started in 2010. Much of this wealth, including land or proceeds from the sale of land, may be heavily taxed. With this in mind, many landowners may be looking at how they can create benefits for their family and continue to make a difference in the hometowns they love – even after retirement or death.
What many farmers and landowners may not be aware of is that there are options to keep the land they love in production, while receiving tax benefits and supporting their community for generations to come. Assets of farmland can be gifted as a whole or in part, for a charitable purpose through gifts of real estate through certain programs.
Each farmer or landowner’s situation is different, but there are several land gifting options that exist which can provide benefits to the landowner (donor), tenants who rely on the land as a part of their livelihood, and the county in which the land resides who can continue to receive property taxes on the land. The end result is landowners can make a significant impact on their community and the causes that matter to them for generations to come and receive tax benefits.
The Community Foundation of Northeast Iowa’s (CFNEIA) Farmland for Good program is one example of this type of philanthropic plan. The donor, for example, could make an outright gift of farmland, either during their lifetime or upon their death, and instruct the Community Foundation to rent the land for a set number of years with earnings from the land going to a permanent endowment fund established with CFNEIA that benefits the nonprofit or community entity of their choice. There is also the option to create a charitable life estate where the donor retains income and use of the land for life. Both options result in charitable funds that provides support to the selected cause or causes forever.
When a person gives the Community Foundation or other qualified charities all or a portion of his or her estate, the value of the land acts as a charitable gift deduction on his/her tax return. With a plan, you can reduce the estate tax burden and possibly eliminate it. More importantly, landowners can leave a charitable legacy for their community.
To summarize, benefits of gifting farmland include:
- Land stays local and is tended to by local hands.
- Land remains functional as farmland.
- Land provides a lasting legacy for you and your community.
- The donor may receive a tax deduction for the charitable portion of the gift.
- Donor may avoid capital gains taxes.
- Possibly reduce or eliminate estate taxes for your family.
For landowners, know that options are available that include ways to preserve part of a family’s assets while generating charitable funding forever.
Also keep in mind potential tax law changes, especially changes to estate tax exclusion and stepped-up basis, impact transfer of wealth decisions for individuals, families, and businesses. Knowing how charitable programs can be a beneficial part of creating tax savvy and impactful solutions is an important piece of developing a smart plan.
Every landowner’s situation is unique, and the Community Foundation of Northeast Iowa recommends you discuss options with a tax or financial advisor. Click here for more on CFNEIA’s Farmland for Good program or call the Foundation at 319-287-9106.