Beginning Farmer Loan Program

The Iowa Beginning Farmer Loan Program (BFLP) was established in 1981 to assist new farmers in acquiring agricultural property. Beginning Farmer Loans are financed by participating lenders or contract sellers with the issuance of federal tax-exempt bonds offered by the IADD. Interest received on contract sales or direct loans by individuals is also exempt from state income taxes. 

The tax-exempt interest income earned by lenders and contract sellers enables them to charge borrowers a lower interest rate. Beginning farmer loans typically carry interest rates approximately 20 to 25 percent below prevailing market rates.

Under a federal law that became effective in August 1996, beginning farmer loans can be used for transactions between parents, grandparents and siblings. Such transactions must be financed through third-party lenders; Internal Revenue Service (IRS) rules prohibit contract sales between close relatives.

Qualifications

Beginning Farmer Qualifications

Beginning Farmers Must:

• Be a resident of Iowa and 18 years of age at time of application 
• Have a net worth of no more than $665,288
• Have sufficient education, training or experience for the anticipated farm operations 
• Have access to the following as needed: adequate working capital, farm machinery, livestock, agricultural land. 
• Be owner/operator 
• Land ownership must be below 30% of the county median

Asset Owner Qualifications 

• Must currently own the asset being leased to the beginning farmer
• Eligible to own land under corporate farming laws
• Not at fault for terminating a prior lease
• Not a part to pending legal action regarding violation of AFO’s
• Not classified a habitual violator by DNR
• Can have more than one tax credit/lessee
• At fault terminations must re-pay redeemed credits

General Guidelines

• A definition of Agricultural Assets is stated as “agricultural land, depreciable property, crops or livestock”.
• In order to receive the tax credit, you must execute a contract for the transfer of the assets.
• Contracts can be as short as two years or as long as five years, upon entry into the program.
• The tax credit is limited to those items addressed in the contract.
• A copy of the contract must be included with the application to the IADD.
• The tax credit will be issued in the taxpayer’s name for the amount of 7 percent of a cash contract, and 17 percent for a commodity shares based contract.
• The tax credit can be used for personal or corporate Iowa income taxes, however, the tax credit will be issued to the corporation, unless specifically requested to have it issued to the individuals. 

Application/Approval Procedures

• Obtain a copy of the Beginning Farmer Loan Program Application
• Complete application with lender or seller
• Negotiate loan terms, including interest rate, length of loan, prepayment options, service fees and repayment schedule with lender or seller
• Submit application, financial statement, background letter, other required materials and non-refundable application fee to IADD by the 1st of the month
• A public hearing will be conducted during the board meeting on beginning farmer loan projects, at which time, the IADD Board may approve the bond resolution
• After adoption of the final bond resolution, all parties may close the loans 

Program Benefits
Beginning Farmer Benefits 

• Receives benefit of lower rate of interest on a loan
• Down payment negotiated with bank or contract seller  
• Can purchase from a closely related party (parents, grandparents and siblings) through a third party lender at fair market value
• No restrictions on off-farm income
• If eligible may be used in conjunction with down payment assistance through a Farm Service Agency (FSA) loan or Loan Participation Program (LPP) loan through the IADD when financed through a bank

Bank Benefits

• Lenders receive federal tax exempt interest on the loan
• Opportunity of providing a lower interest loan to a “beginning” farmer
• Negotiation of down payment and loan terms are between you and the beginning farmer
• Bank establishes a new long-term relationship with a beginning farmer
• Loans qualify under the Community Reinvestment Act (CRA)
• If eligible may be used in conjunction with down payment assistance through a Farm Service Agency (FSA) loan or Loan Participation Program (LPP) loan through the IADD when financed through a bank

Contract Seller Benefits 

• Receives a federal and state tax exemption on the interest earned on BFLP loans
• Can receive a state tax exemption with no maximum
• Assist beginning farmers by giving them access to low-interest financing
• Negotiation of down payment and contract terms are between you and the beginning farmer
• Contract sales are permitted between related parties but not closely related parties such as parents, grandparents or siblings.

The IADD cannot issue a tax credit certificate if any of the following apply:

• The taxpayer is at fault for terminating a previous contract under the Iowa Beginning Farmer Tax Credit Act
• The taxpayer has any administrative or judicial actions against him related to violations involving
• an animal feeding operation
• The taxpayer is classified as a habitual violator for violations involving animal feeding operations

Provisions

• 2-5 year lease term
• Renewable at expiration (if qualifications are met)
• Tax Credit Amount is
• 7.0% of rental income received = cash contract
• 17.0% of owners share of product = commodity/livestock share agreement
• Flex leases are acceptable, but credit will be calculated on the cash base only, no additional
• credit will be calculated or issued on the flex terms
• Lease value must not be substantially higher or lower than market value for the area
• Can carry unused credits forward 5 years
• No carry back
• Related party transactions are accepted
• Non-refundable application fee
• Material changes to lease (cannot add acres or increase rent arbitrarily) cannot increase the
• original credit amount approved
• Must notify IADD before any change to the lease