IRS releases Farm Land Valuation Interest Rates
A farmer’s estate is normally required to value all farm land at fair market value. However, the estate can elect to value the land at “rental value”, if lower. There is an overall limit of $1,160,000 for 2019. This means if the calculated reduction is $5 million, you will be limited to only decreasing the value by $1.16 million.
There are four banks which provides these interest rates. They are the banks which normally make loans to the Farm Credit System and are as follows for 2019:
- AgFirst, FCB – 5.27%
- AgirBank, FCB – 4.67%
- CoBank, ACB – 4.37%
- Texas, FCB – 5.00%
Every state is covered by one of these banks and the interest to be used is based on where the land is located. The lower the interest rate, the higher the value. Let’s look at an example:
Don Farmer passes away in 2019 owning 2,000 acres of land in Iowa. The Fair Market Value of the land is $20 million. The average net rental income per acre is $225 (reduced by appropriate real estate taxes). AgriBank is his bank for this special valuation purpose. Dividing $225 by 4.67% results in a gross value per acre of $4,818 times 2,000 acres equals total rental value of $$9,636,000. However, the estate can only decrease the value by $1,160,000.
As you can see, it is normally very easy to reduce the value a fair amount, but the overall limit kicks in very quickly. In Don’s case, the limit is reach with only 223 acres ($1,160,000 / ($10,000-$4,818).
There is chatter about introducing a bill to increase this limit or even try to eliminate the limit. We will keep you posted on this.
For those who still might need CPE related to farm taxes (or farmers who want to learn more), there are still three courses available via webcast that I will be teaching. This Wednesday, the South Dakota Society has the class at the Holiday Inn in Sioux Falls, The Iowa Society on September 9 is releasing the webinar from our seminar last week (we had technical difficulties on the webinar and you should be able to sign up for it) and finally on Tuesday September 24, the Minnesota Society is having an on-site and webcast in Fergus Falls, Minnesota. You can Google each of these CPA societies to sign up (for Iowa you may need to call).
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
I hope your Sept. 24th seminar is in Detroit Lakes, MN and not Fergus Fall’s. Let us know if its changed to Fergus Fall.