What Can we Do with our Small Farm?
Posted 03-01-2009 at 01:23 AM by anjelena
Contents
Goals for the farm
Hobby
Ag deferral
Income
Crop production costs and returns per acre
Physical resources of the farm
Land--types of soils
Water--potential for irrigation
Climate and microclimate
Type of enterprise
Production technique
Type of crops
Marketing
Family resources and skills
Finances
Credit
Family skills and desires
Other factors to consider
Summary
Resources and references
--------------------------------------------------------------------------------
Often, when people buy a small farm they simply want someone to tell them what they can "do" with it. As strange as it might seem, this isn't an easy question to answer. When landowners begin to make important decisions related to the use of their property, they might not recognize the complicated web of details involved. Before making decisions, you should consider these major factors that interact with and influence each other (Figure 1):
Goals for the farm
Physical resources of the farm
Family resources and skills
Type of farm enterprise and crop produced
For instance, the type of soil on a farm influences what crops can and cannot be grown, which in turn influences the level of gross farm income. Also, the farm owner's skills for (and enjoyment of) working directly with consumers might influence the farm's marketing technique (direct marketing versus wholesale). Small farms are like any small business. They often require long hours, long-term commitment, and stamina. And like many highly successful small businesses, they require a risk taking, entrepreneurial spirit.
The major components involved in a farm enterprise decision and how they interact with each other
Figure 1. The major components involved in a farm enterprise decision and how these factors interact with each other.
Goals for the farm
The owners of small farms vary in both resources and aspirations. Many people are interested in having a few animals, growing some fruits and vegetables, and providing a high-quality rural lifestyle for their families. Others seek to manage a small farm intensively to produce supplemental or total family income.
The goals you set for your small farm must realistically consider the feelings of family members, your financial situation, the farm or business-related talents family members have (or don't have), and more. Consider these questions:
Do you view the farm as a "hobby" and a way to achieve quality of life for the family?
Are you simply trying to keep the agricultural tax deferral?
Do you want the farm to produce a supplemental or even a full income for your family?
Small farms as a hobby
Rural areas are attractive places for families to live. A great deal of satisfaction can come from experiencing farm life without the pressure to make a profit. In this situation, money from off the farm supports the farm's activities.
In addition, many small-farm families wish to replace some of their purchased food with home-raised foods. This can be extremely satisfying and surprisingly easy. Two acres will produce a year's supply of vegetables, ample fruits and berries, some meat, and possible opportunities for small cash sales. Another 2 acres of well-managed woodlot can heat a well-constructed house indefinitely. This path is different from a commercially focused farm, but is very appropriate for many families.
Agricultural deferral
Many small farms are located in areas that are not zoned exclusively for farming. These properties are subject to higher property taxes if they are not kept in farm use. The agricultural property-tax deferral lowers the property tax burden of farms that are not located in exclusive farm use areas but are producing income from farming.
In order to receive and maintain the deferral, these farms must meet certain income tests. For some property owners, this requirement results in the ag deferral dilemma. In this situation, people sometimes spend $2,000 to save $1,000 on their taxes. How do otherwise rational people get into this bind? Either they misunderstand how the system works, or they don't get good numbers.
To qualify for the agricultural property tax deferral, you must show the following annual income:
0-6 acres: $650 minimum
6.1-29.9 acres: $100/acre
30 or more acres: $3,000 minimum
You must demonstrate the minimum income 3 out of 5 years. The assessor can request a copy of the "Farm Schedule F" from your federal income-tax filing to evaluate your claim for deferral.
Here is a hypothetical situation:
No deferral With deferral
Value of house:
Value of homesite:
Value of 10 acres:
Total:
$125,000
70,000
100,000
$305,000 $125,000
70,000
5,000
$200,000
Difference: + $95,000 in assessed or taxable value
Let's assume the tax rate is $18/$1,000. (Your assessor can tell you your specific tax rate.) What you actually would pay each year in additional property taxes without the agdeferral is $18 x 95 = $1,710. Note that the homesite, house, and any buildings are not affected by the ag deferral.
It's important to find out from your assessor what the assessed value of your land would be with and without the deferral. Then do the above calculation on your own property and decide where you come out.
Finally, if you convert all or part of the property to non farm uses, you most likely will be liable for back taxes at the difference between the ag deferral value and market value for the previous 5 years, even if you just purchased the property. This consideration can be an important item to look at before you buy property.
The income tests for the ag deferral are not connected to the separate (and usually steeper) income test that a county might require before a dwelling can be built on agricultural land.
Timber land deferral has a similar impact on property taxes but doesn't require annual income proof after the stand is planted. Growing trees for timber could be considered for all or a portion of your rural acreage.
There might be tax incentives to manage your property as wildlife habitat. Under the "Wildlife Habitat Conservation and Management Program," landowners can retain their agricultural assessment when they enter into a management agreement with the Oregon Department of Fish and Wildlife.
This program is entirely voluntary, and counties are not required to accept applications for it. To qualify, the property must be zoned as agriculture or mixed farm and forest use, and must be within a participating county. Contact your county assessor for more information.
.
Goals for the farm
Hobby
Ag deferral
Income
Crop production costs and returns per acre
Physical resources of the farm
Land--types of soils
Water--potential for irrigation
Climate and microclimate
Type of enterprise
Production technique
Type of crops
Marketing
Family resources and skills
Finances
Credit
Family skills and desires
Other factors to consider
Summary
Resources and references
--------------------------------------------------------------------------------
Often, when people buy a small farm they simply want someone to tell them what they can "do" with it. As strange as it might seem, this isn't an easy question to answer. When landowners begin to make important decisions related to the use of their property, they might not recognize the complicated web of details involved. Before making decisions, you should consider these major factors that interact with and influence each other (Figure 1):
Goals for the farm
Physical resources of the farm
Family resources and skills
Type of farm enterprise and crop produced
For instance, the type of soil on a farm influences what crops can and cannot be grown, which in turn influences the level of gross farm income. Also, the farm owner's skills for (and enjoyment of) working directly with consumers might influence the farm's marketing technique (direct marketing versus wholesale). Small farms are like any small business. They often require long hours, long-term commitment, and stamina. And like many highly successful small businesses, they require a risk taking, entrepreneurial spirit.
The major components involved in a farm enterprise decision and how they interact with each other
Figure 1. The major components involved in a farm enterprise decision and how these factors interact with each other.
Goals for the farm
The owners of small farms vary in both resources and aspirations. Many people are interested in having a few animals, growing some fruits and vegetables, and providing a high-quality rural lifestyle for their families. Others seek to manage a small farm intensively to produce supplemental or total family income.
The goals you set for your small farm must realistically consider the feelings of family members, your financial situation, the farm or business-related talents family members have (or don't have), and more. Consider these questions:
Do you view the farm as a "hobby" and a way to achieve quality of life for the family?
Are you simply trying to keep the agricultural tax deferral?
Do you want the farm to produce a supplemental or even a full income for your family?
Small farms as a hobby
Rural areas are attractive places for families to live. A great deal of satisfaction can come from experiencing farm life without the pressure to make a profit. In this situation, money from off the farm supports the farm's activities.
In addition, many small-farm families wish to replace some of their purchased food with home-raised foods. This can be extremely satisfying and surprisingly easy. Two acres will produce a year's supply of vegetables, ample fruits and berries, some meat, and possible opportunities for small cash sales. Another 2 acres of well-managed woodlot can heat a well-constructed house indefinitely. This path is different from a commercially focused farm, but is very appropriate for many families.
Agricultural deferral
Many small farms are located in areas that are not zoned exclusively for farming. These properties are subject to higher property taxes if they are not kept in farm use. The agricultural property-tax deferral lowers the property tax burden of farms that are not located in exclusive farm use areas but are producing income from farming.
In order to receive and maintain the deferral, these farms must meet certain income tests. For some property owners, this requirement results in the ag deferral dilemma. In this situation, people sometimes spend $2,000 to save $1,000 on their taxes. How do otherwise rational people get into this bind? Either they misunderstand how the system works, or they don't get good numbers.
To qualify for the agricultural property tax deferral, you must show the following annual income:
0-6 acres: $650 minimum
6.1-29.9 acres: $100/acre
30 or more acres: $3,000 minimum
You must demonstrate the minimum income 3 out of 5 years. The assessor can request a copy of the "Farm Schedule F" from your federal income-tax filing to evaluate your claim for deferral.
Here is a hypothetical situation:
No deferral With deferral
Value of house:
Value of homesite:
Value of 10 acres:
Total:
$125,000
70,000
100,000
$305,000 $125,000
70,000
5,000
$200,000
Difference: + $95,000 in assessed or taxable value
Let's assume the tax rate is $18/$1,000. (Your assessor can tell you your specific tax rate.) What you actually would pay each year in additional property taxes without the agdeferral is $18 x 95 = $1,710. Note that the homesite, house, and any buildings are not affected by the ag deferral.
It's important to find out from your assessor what the assessed value of your land would be with and without the deferral. Then do the above calculation on your own property and decide where you come out.
Finally, if you convert all or part of the property to non farm uses, you most likely will be liable for back taxes at the difference between the ag deferral value and market value for the previous 5 years, even if you just purchased the property. This consideration can be an important item to look at before you buy property.
The income tests for the ag deferral are not connected to the separate (and usually steeper) income test that a county might require before a dwelling can be built on agricultural land.
Timber land deferral has a similar impact on property taxes but doesn't require annual income proof after the stand is planted. Growing trees for timber could be considered for all or a portion of your rural acreage.
There might be tax incentives to manage your property as wildlife habitat. Under the "Wildlife Habitat Conservation and Management Program," landowners can retain their agricultural assessment when they enter into a management agreement with the Oregon Department of Fish and Wildlife.
This program is entirely voluntary, and counties are not required to accept applications for it. To qualify, the property must be zoned as agriculture or mixed farm and forest use, and must be within a participating county. Contact your county assessor for more information.
.
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