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Tuesday, August 30, 2016
I guess this has been long in coming especially when considering the advancing age of farmers in the US, but it takes some time to actually compile the data. What surprises me the most is that only 2.3% of that land will be sold to non-relatives! Now according to the data provided by the USDA that will be approximately 2.139 million acres - just a drop in the bucket of the 93 million acres estimated to change hands! Happy reading (the article was originally found here).
Farmland owners plan to transfer 93 million acres in the next five years (2015-19) — 10% of all land in farms — through a variety of means. Landowners anticipate selling 3.8% of all farmland, with just 2.3% expected to be sold to non-relatives, according to a new report from the U.S. Department of Agriculture's Economic Research Service, "U.S. Farmland Ownership, Tenure & Transfer."
The relatively advanced age of the U.S. farming population — about a third of principal farm operators in 2014 were at least 65 years old, compared with 12% of self-employed workers in non-agricultural businesses — has sparked interest in the manner in which land will be transferred to other landowners, including the next generation of farm operators.
A larger share of land (6.5%) is expected to be transferred through trusts, gifts and wills. The share of farmland available for purchase by non-relatives during 2015-19 will likely rise above 2.3% as some individuals (or entities) that inherit land may choose to sell it. Also, those who inherit land but don't sell it may decide to rent it out to farm operators.
In 2014, less than 4% of all land in farms was anticipated to be sold over the next five years, 38% of which was expected to involve a sale between relatives. "This highlights the limited amount of farmland expected to be on the competitive market in that five-year period — 21 million acres, or 2.3% of land in farms — and illustrates the challenges of accessing land through an open-market acquisition," the report stated.
One of the most popular methods of anticipated transfers in the next five years is placing or keeping land in trusts. The use of a trust as a means to transfer land is often considered a tool for estate planning. Although it varies on a case-by-case basis, compared to a will, a trust is typically more complex and can sometimes be costlier to establish and manage.
For landowners who plan to utilize a trust, the data reveal that the average acreage planned to be transferred via trust was 420 acres, while for those planning to use a will, the average amount of land to transfer was 47 acres, the report noted. "Thus, one explanation for why operating landowners are more likely to use trusts than non-operators is that a large majority of non-operators own less than 180 acres," the report stated.
While it is estimated that 57 million acres will be transferred by putting them or keeping them in a will, based on the life expectancy of the owners, only about 20% of this land is expected to actually be transferred in the next five years.
As farmers approach retirement age, they are increasingly more likely to own the land they operate. Also, as noted, 38% of non-operator principal landlords classify themselves as retired farmers, indicating that former operators supply a large share of farmland available for rent.
In considering retirement, farm households must take into account a number of factors, including income tax laws, estate tax laws, their ability to rent out land and the interest of heirs in continuing the farming operation.
According to 2014 research from then-Iowa State University agricultural tax specialists Roger McEowen and Neil Harl, federal income tax laws allow heirs to sell inherited property without paying tax on realized gains, whereas the owner from whom the land would be inherited would be required to pay tax on any appreciation in land value since the original purchase or acquisition. "This may encourage older farmers to hold onto their land and rent it out for retirement income, allowing heirs to make the decision to sell and, thus, avoiding paying taxes on any realized gains," the report said.
Federal estate tax policies that allow larger amounts of property to be transferred at death free of any estate tax further reinforce this incentive. "In addition, the income from renting land may also serve as an incentive to hold onto it, especially if the farmland property represents a large share of accumulated assets," the report stated.
In 2014, 39% of all farmland was rented, and 61% was owned by farm operators.
For more on the amount of land rented and other findings from the survey, read our story, Rented land prominent in countryside.