Feeling the Pinch on Your Farm?

As a Partner at MBE CPAs, I understand farmers’ challenges with rising inflation and property taxes. In 2024, farmers are projected to spend $15 billion on fuel and oil, their ninth-highest input cost. Property taxes are even higher, estimated at $19 billion, which is expected to grow. 

In 2023, property taxes nationwide rose more than seven percent. States like Texas saw increases of 13 percent, while Nebraska experienced hikes as high as 22 percent. These increasing costs create significant financial pressure on rural landowners and the agriculture industry. 

At MBE CPAs, we provide farmers with tax planning to manage these challenges. In this article, I’ll explain how rising property taxes impact agriculture and offer strategies to reduce the burden.  

Featured Topics:

• The Problem: Why Farm Property Taxes Are Rising
• The Implications of Rising Property Taxes for Farmers
• The Solution: Farm Tax Planning and Exemptions
  • Horticulture Tax Exemption
  • Homestead Exemption
  • Farm Equipment Tax Exemption
  • Soil Testing Deductions
  • Conservation Easements
  • Land Trusts
  • Succession Planning
• Access to Agricultural Tax Professionals

The Problem: Why Farm Property Taxes Are Rising

COVID-19 changed migration patterns in 2020 after nearly a decade of negative movement. More people began relocating to rural areas as remote work allowed greater flexibility. Many wealthier Americans moved to rural communities, driving up property values. 

The farmland market remains strong, and home values in agricultural states are rising quickly. For example, in Nebraska, a typical home that cost $190,000 in 2019 is projected to reach $315,000 by November 2024—an increase of 66 percent. Similarly, in Kansas, a home priced at $220,000 in 2019 is expected to be valued at $358,000 by 2024, marking a 63 percent rise. 

Property taxes are tied directly to these rising values, meaning higher landowners’ taxes. Inflation is also pushing many states to raise tax rates, further increasing the financial burden on farmers. 

The Implications of Rising Property Taxes for Farmers

While high land values seem positive, they can be problematic. When farmland values increase, so do the taxes owed on that land. The challenge comes when land prices cool and farmers’ incomes decline, but property taxes continue to rise. 

Property taxes don’t increase at a steady rate either. They might stay flat for several years before spiking, making it hard for farmers to budget. This is why having a proactive tax plan is essential to managing these unpredictable hikes. 

The Solution: Farm Tax Planning and Exemptions

Many farmers use a mix of strategies to reduce their tax burden. Below are some of the most used tax exemptions and programs in agriculture, along with how farmers can qualify for them. 

→ Horticulture Tax Exemption

While some might hope for it, horticulture tax exemptions don’t usually apply to individual farmers. Under IRS Code Section 501(c)(5), these exemptions are designed for agricultural organizations like co-ops, not individual farmers. However, this exemption can reduce costs for farming co-ops, benefiting participating farmers. 

→ Homestead Exemption

Several states offer homestead exemptions that reduce property taxes on a farmer’s primary residence. These exemptions lower the home’s assessed value, reducing the taxes owed. In some cases, this exemption can also apply to a portion of the surrounding agricultural land. 

→ Farm Equipment Tax Exemption

Section 175 of the IRS code allows farmers to deduct the cost of agricultural equipment, like tractors, from their taxable income. In 2023, farmers could deduct up to $1.16 million, reducing their federal tax payments. 

Thanks to the Tax Cuts and Jobs Act (TCJA), farmers can also claim bonus depreciation, allowing them to take more significant deductions in the first year of equipment purchases.

→ Soil Testing Deductions

Farmers who purchase or inherit land can take advantage of IRS Section 180, which allows deductions for soil fertility. Keeping track of these results is vital to help maximize deductions for your tax savings. 

→ Conservation Easements

Many farmers protect their land through conservation easements, which limit development to preserve its natural or agricultural features. As the easement’s appraised value decreases, this often results in lower property taxes. Federal income tax deductions are also available based on the easement’s appraised value. 

→ Land Trusts

Land trusts are nonprofit organizations that help farmers navigate conservation easement donations or sales. Partnering with a land trust offers tax benefits while promoting land conservation. Farmers can contribute to conservation efforts and reduce tax liabilities by working with these organizations. 

→ Succession Planning

Only 23 percent of farmers have a succession plan. Many hope to pass their farms on to their children, but estate taxes can force heirs to sell the land. Succession planning ensures a smoother farmland transition to the next generation and helps prevent unexpected tax burdens. 

Access to Agricultural Tax Professionals

Do you need help reducing your tax burden? At MBE CPAs, we specialize in helping farmers optimize their financial strategies. Agricultural tax laws can be complex, but our professionals can guide you. We’ll help you document eligible expenses, maximize deductions, and develop a tax plan that works for your operation. 

Let us assist you in lowering your taxes and keeping more of your hard-earned income.