The USDA, ERS published the “Summary of U.S. Farm Income Financial Indicators” comparing multiple farm financial data points from 2011 to 2018F. Comparing two of the sets of numbers, Farm Real Estate values vs Net Farm Income over the same periods of time shows a stark contrast.
While the average Farm Real Estate value shows an improvement of almost 39% since 2011, there is a corresponding decrease in Net Farm Income of almost -42%. We should always remember that any conclusion drawn from these numbers is that they are national averages and will most certainly differ from any actual numbers from any particular farm. With that said, what does this information tell any farm operation or farm land owner?
If your specific farm operation’s net income vs farm real estate numbers look anything like the USDA’s numbers, it is difficult to improve them with suppressed commodity prices. Some farm operation are investigating the sale of a small tract of their owned farmland to improve cash flow and improve the balance sheet. The problem is that capital gains taxes will take a chunk out revenue and the loss of farm value is difficult to handle, even with tough commodity prices.
Farm Operations - The Solution
Because you have decided to stay in farming and improve your operation, the Monetized Deferred Payment Transaction (U.S. Patent Pending) MDPT, will provide a way to defer your capital gains on farm land sales but receive up to 95% of the net sale as a loan just days after close. This way, you can reinvest the deferred tax dollars into your farm and preserve the value of you farm land sale.
Farm land Owners
The low commodity prices are keeping cash rent amounts suppressed in even the best farm land in the Midwest. Take a look at your cap rates over the span of time shown in the graph shown. Property taxes for your farm may be rising in conjunction with the lower cash rent, placing a strain on your returns. If capital gains taxes have kept you from listing your farmland, MDPT may be a way to help you improve your net sale options.
Farm land Owners – The Solution
MDPT provides the process to defer the capital gains taxes on the farm land sale for up to 30 years. You will receive a loan of up to 95% of the net sale a few days after sale close. You have an almost unlimited array of investment options with the deferred taxes. You could double or triple those dollars over 30 years with wise investments. You should partner with your CPA to ensure that your investments are structured wisely as those taxes will be due in 30 years!
The USDA numbers provide some somber data regarding today’s agricultural situation. However, farmers and farm land owners have lived through different types of cycles in the past and will do so in the future. With any cycle, it is always good to plan with your farm/financial team and develop steps to improve your situation. The next step is to execute those plans and look towards the future.