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Improving the Balance Sheet

Updated: Aug 6, 2019

Sitting down with the farm’s banker may not have been enjoyable for many grain farmers this past winter. Suppressed corn and soybean prices make cash flow a rough proposition, if you are looking to break even. The March 2019 Rural Mainstreet Index reports that “Almost one-third of banks have increased the farm loan rejection rate due to anemic farm income.”


New commodity sources such as hemp (where states have passed legislation to grow and sell hemp), organic grains and specialty crops provide new avenues to improved revenue. The issue goes full circle back to capital to make the changes to new crops or even to continue with the current product mix.


To improve the balance sheet, some farmers are calculating the benefit of selling some of the farmland (and then renting it from the new owner) for much needed debt reduction. But some quick math dampens the enthusiasm when the capital gains tax is calculated.


Let’s look at the following example:

In our example, a farm operation includes 4,000 acres of rented ground plus 480 acres of owned farmland that was purchased years ago. To get the balance sheet where it needs to be, 160 acres of owned farmland will be sold.


  • The 160 acres was purchased for $775/acre for a total cost of $124,000

  • If the 160 acres could be listed this month, it could go for $1,423,000 (as a net sale in our example)

  • Capital gains taxes would be (we will use a Federal tax rate of 20% and a State tax rate of 6% for this example):

  • 26% on $1,299,000 gain is a capital gains tax of $337,740 (for our example)

  • The farmer nets $1,085,260 on the farm sale


The farmer would have almost $1.1M to help improve the balance sheet. But look closer, there is $337,740 of taxes paid which is like losing over $2,100/acre in value!


What if the farmer could defer the capital gains taxes for up to 30 years and have $1,351,850 of the farm sale to help improve his balance sheet? Using MDPT, the farmer will have $266,590 more dollars than paying the capital gains tax in the year of the farm sale.


MDPT provides a way to:

· Defer taxes for up to 30 years

· Up to 95% of the net farm sale as cash (in the form of a low interest loan)


The $266,590 dollars from our example is preserving value in the 160 acres that has been sold. $266,590 represents $1,666/acre in value that has been preserved. When you are looking for every penny so your farm operation can weather this current storm, utilize MDPT.

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