2014 Farm Leases: Cash Rent & Hybrid Agreements

--> Now is the time dictated by Iowa law to begin negotiating crop land leases for 2015 or at least notify your tenant/landlord, as the case may be, if you wish to change any of the terms in your current lease. (Remember that mutual consent is required if you want to make changes in the middle of a multi-year lease.)
--> If you wish to terminate a cropland or pasture lease ending March 1, 2015, and have not already done so, you must serve notice in the manner set out in Iowa Code §562.7 on or before September 1, 2014. This statute does not apply to custom farming arrangements, but by tradition, many farm operators have come to expect notice by September 1.
--> Basing cropland rent on the current CSR2 (“corn suitability rating” or in some regions “crop suitability rating”) of the soil in question is the most accurate and fair way to arrive at a comparable rent [See Computing a Cropland Cash Rental Rate: http://www.extension.iastate.edu/Publications/FM1801.pdf]. In concert with the slight decline in farm land values and the dramatic drop in grain prices, cash rental rates have remained steady or dropped during the current year. Below is a table of farmland values and cash rents from last year's ISU surveys in counties for which I prepare farm land leases:

--> The table above is based upon averages from sometimes limited survey results, but it does give a general idea of what the market for Iowa farm land looks like. The leases I have prepared so far this year continue to fall in the $2.50 to $3/CSR point range, with the higher quality land falling at the higher end of that range. There continues to be interest in deviating from the traditional cash rent model. By using a formula, tenants and landlords can avoid the often stressful exercise of negotiating a new rental rate every few years in order to keep up with changing economic circumstances. Flex lease formulas can also allow landlords to participate in windfalls during good years and tenants to reduce risk in bad, although current crop insurance revenue products go a long way in protecting farm operators from price and production risk. If you would like more information, I encourage you to contact your local ISU extension office.
--> Water quality issues and increased scrutiny of farm nutrient runoff is currently the prime topic of interest on the political front.
--> Please contact my office if you have questions. Good luck with your negotiations!

©2014

Tax Time 2013

_____Now is the time to take stock of 2013, at least financially, by gathering your income and deduction records in preparation for filing your annual tax returns. The primary changes in tax law this year are the new taxes designed to help fund the Affordable Care Act. If you owe either of these taxes, congratulations—it means you are in the top 10% of income earners in the United States of America. If you have earned income in excess of $200,000 as a single person or over $250,000 as a couple filing jointly, you will pay an additional 0.9% tax on the excess toward the medicare system (single payer health care coverage for the elderly and disabled). If you have adjusted gross income in excess of those thresholds, you will pay an additional 3.8% tax on the smaller of your net investment income or the excess of your adjusted gross income above those levels. In this area, that tax will apply primarily to individuals who sold farmland and realized a large capital gain. Speaking of capital gains, the maximum tax rate on capital gains increased from 15% to 20% for 2013, but that is still just a hair over half of the maximum income tax rate on earned income, which is still 39.6%.

_____In the depreciation arena, for 2013, you can still expense up to $500,000 on up to $2,000,000 of eligible purchases, but this year (2014) you can only expense up to $25,000 on up to $200,000 of eligible purchases (IRC §179).

_____As was the case last year, you must have a contemporaneous written receipt for donations totaling over $250 to a particular charity. Also, I cannot prepare your tax return if you hold any assets outside of the United States. Identity theft continues to be a problem. Please do not send any documents by e-mail that contain social security numbers or bank account numbers, unless they are password protected. I am in the process of setting up a secure online drop box and will send you details if you e-mail me.

_____IRS requires mileage logs for vehicles with business use; standard mileage rates for 2013 are:

###############Federal *******Iowa
Business: . . . . . . . . . . 56.5¢/mi. . . . 56.5¢/mi.

Medical & moving: . . . 24¢/mi. . . . . 24¢/mi.

Charitable: . . . . . . . . . 14¢/mi. . . . . 39¢/mi.

_____You are required to send a Form 1099 to any individual, partnership or LLC that you paid $600.00 or more for services, rent or interest. Payments to cooperatives, banks and other corporate entities are excluded. Wages in excess of $150 in any quarter require the filing of Forms W-2 and W-3. If you would like us to prepare these forms, you will need to provide us with the information before January 25, 2014.

_____If you have questions on any of the above or other tax matters feel free to call, e-mail, or stop in. When you have your records ready you may let us know and we will set up an appointment that is convenient for you. Evening or Saturday appointments can be arranged.

_____Best Wishes for the New Year!

Pursuant to U.S. Treasury Regulations, you are hereby advised that any federal tax advice included in this communication is not intended or written to be used, and cannot be used, to avoid any U.S. federal tax penalties or to promote, market, or recommend to another party any transaction or matter. For further information, see IRS Circular 230.