First-time Farmers Loans

Under the Internal Revenue Code, up to $250,000 of tax-exempt financing can be obtained to finance depreciable farm property with respect to which the principal user is or will be the same person or 2 or more related persons. Depreciable farm property is property for which depreciation can be taken used in a trade or business of farming (i.e., buildings, equipment).

The land financed  must be used for farming purposes. The land must be acquired by an individual who is a "first-time farmer" who will be the principal user of the land and who will materially and substantially participate in the operation of the farm on that land.

A first-time farmer is any individual who never had direct or indirect ownership in substantial farmland in the operation of which he materially participated, and who has not received first-time-farmer financing which, added to current loan, would exceed $250,000. The ownership of spouse and minor children of an individual are attributed to that individual. Any farmland previously owned by an individual and disposed of during insolvency is disregarded if the individual received income from discharge of indebtedness under section 108.

"Substantial farmland" is any parcel unless smaller than 30% of the median farm size in the county and value never exceeded $125,000.

No more than $62,500 of financing can be used for used farm equipment. Acquisitions of used equipment from related persons is permitted if fair market value is paid and the seller will have no ongoing interest. Equipment must be used on the land for farming purposes.

Farms includes stock, dairy, poultry, fruit, fur bearing animal, truck farms, plantations, ranches, nurseries, ranges, greenhouses or other similar structures used for raising of agricultural or horticultural commodities and orchards.