Do you know the minimum acreage for farm tax purposes? Or what it takes to really be considered a “farm” in the eyes of the government? If you’re not sure, this post is for you.
Minimum Acreage For Farm Tax Purposes
We recently did a post on “How to Qualify for Farm Tax Exemptions” in which we talked a little bit about the minimum acreage required for farm tax purposes. It only included a couple of short sentences on the subject, but there’s a lot more to unpack.
In that post, we wrote:
“There is no minimum acreage required in order for your property to be considered a farm. The IRS focuses instead on things like whether or not you operate your farm in a businesslike manner, the time and effort you spend on farming indicate you intend to make it profitable, and how much you depend on income from farming for your livelihood.”
However, there are certain rules in most states if you want to have your property considered “agricultural” for property tax assessment purposes.
Here in Tennessee where we have offices in multiple locations (Jackson, Dyersburg, Paris, Brownsville, Martin, & Milan…heavy farming communities), we have a “Greenbelt Law” that allows agricultural land to receive “favorable tax treatment for assessment purposes.”
(For full details, take a look at the Greenbelt Handbook for Assessors of Property from the TN Comptroller’s office.)
You need to operate your farm like a serious business.
It states that for land to be considered “agricultural” it must pass one of the two following tests according to Tennessee Code Title 67:
1)(A) “Agricultural land” means land that meets the minimum size requirements specified in subdivision (1)(B) and that either:
(i) Constitutes a farm unit engaged in the production or growing of agricultural products; or
(ii) Has been farmed by the owner or the owner’s parent or spouse for at least twenty-five (25) years and is used as the residence of the owner and not used for any purpose inconsistent with an agricultural use.
(B) To be eligible as agricultural land, property must meet minimum size requirements as follows: it must consist either of a single tract of at least fifteen (15) acres, including woodlands and wastelands, or two (2) noncontiguous tracts within the same county, including woodlands and wastelands, one (1) of which is at least fifteen (15) acres and the other being at least ten (10) acres and together constituting a farm unit;
We realize that quoting state code doesn’t make for exciting reading, but since accountants take a certain amount of pride in accuracy we thought it was worth including the official text on the topic. Here’s how it translates into everyday language.
First, the farm must consist of a minimum of 15 acres of land which is actively being used for agricultural purposes. That would include growing crops, plants, flowers, livestock…even fish. The idea is that you are currently intentionally using the land to produce something.
Notice also that the statute clearly says “engaged in.” Land that you are holding onto and intend to use for farming someday doesn’t qualify.
Secondly, in addition to the usage requirements above, land can qualify as “agricultural” for tax purposes if it is at least 15 acres, has been in the family for 25 years or more, and is the owner’s primary residence. This is referred to as the “family farm provision.”
While this section of the TN Code hopefully helps answer how much land is required to be considered a farm for property tax purposes, there are some additional questions to answer if you want to make sure that you can take advantage of all of the tax benefits of being an ag operation.
Does Your Farm Operate Like a Business?
One thing the government looks at to determine whether or not an activity is a legitimate business or simply a hobby is whether or not you run it like a business. They’re not going to grant special tax exemptions to someone who is homesteading (even on a large scale) for their own family or has a few miniature cows as pets for fun. You need to operate your farm like a serious business.
The goal of any business is to maximize income while minimizing expenses. Your farm is no different.
To maximize income, consider things like what you choose to grow (different crops/animals are in higher demand at different times, multiple streams of income), where you choose to sell (commercial wholesalers, direct-to-consumer, CSA, etc.), and how you choose to market your products. Decisions you make in these areas can significantly help or hurt your revenue.
To minimize expenses, make sure you are getting the most bang for every buck you spend. Lease land vs buying. Rent expensive equipment that you only use once a year (i.e. harvesters). Buy used items instead of the shiny new ones. Take advantage of grant programs whenever possible.
(Read more: “8 Really Nice Tax Breaks For Farmers That Might Save You Money”)
How Much Time Do You Spend?
Related to the previous point, how much time you spend operating your farm says a lot about whether it’s an actual business enterprise or an expensive pastime. Farmers work long hours and put a lot of blood, sweat, and tears into their work. They rarely get a day off when there are animals to care for, crops to tend to, and weather forecasts that mean they’ve got to get that harvest in…no matter how long it takes.
Is It Intended To Be Profitable?
A business doesn’t stay in business very long if it doesn’t create a profit. A farm that can take advantage of government tax breaks and other programs is one where it is clearly intended to be profitable. (That doesn’t mean it always will be, but that should be the goal.)
(Read more: “Why You Need To Know The Difference Between Profit & Cash Flow”)
How Much Do You Depend On Income From Farming?
Also, if you work a 9-5 job and then come home to farm in the evenings and on weekends, it may be difficult to convince anyone that you’re running an ag business. It might be a side hustle at first (especially if you’re just getting started and are transitioning from “city life”), but a big way of showing that you have a serious farm is when you and your family primarily depend on it to provide your income.
CRS Knows Farming
The bottom line is that several things make your farm come across as a legitimate business worthy of all of the tax breaks and benefits that the hard-working farm community deserves.
One of the best things you can do to set your farm operation up for success is to partner with a good CPA firm that understands farming. Our team here at CRS CPAs has been helping farmers grow their businesses for over 40 years, so schedule a call today to find out how we can serve you too.
