Tax Question for Land Rent Free

If I let an area farmer/rancher farm my land free of charge. Is there any tax credit/deduction I can use for tax purposes, of loss of income given away??

Thanks

In landlord tenant situations, it's common for the IRS to want to see reasonable rent charged for a property, ie fair market value.
Otherwise there would be a lot of parents "renting" for $0 a house to their kids and deducting all sorts of costs.
I don't know about farm land situations.
Sort of wondering why would you do that , as it will make future taxes more complex - probably have to take depreciation on buildings/ fencing ? Then recapture it upon sale.

You might be able to get a break on your property tax if your state/county has an exemption or discount for land that's used for agricultural purposes. Whatever you do pay in property tax for the land is deductible on Schedule A of your federal tax return subject to the $10K limit for state and local taxes.

If you did charge rent for the land, then you would report that as income on Schedule E and you could deduct the full amount of the property tax as an expense against the rental income. The farmer would deduct the rent they pay as a business expense on their own Schedule F.

As far as I know, there's no other federal tax credit, deduction or exemption you'd be entitled to just for letting someone else use land you owned to earn their own living. You should file a federal gift tax return if the fair market rent that you're foregoing is greater than the annual gift exclusion of $18K. (It's $18K for each person-to-person pairing, so if you and the farmer are both married, it can be up to $72K.)

Well, the reason is I don't need the money and the guy I plan to buy from can use the extra income. I would let him have the rent for next ten year or an example and I would pay the taxes. It would be a way for him to still have income and get paid for the land. It would cost me a little more money in cost of land but it would be an incentive for him and I would own it. He could continue renting it to existing renter and for whatever he wants or for whom for x# of years. I would own it so I was wondering if there was any tax implications for me donating income.

Side Note >>This is just a small, irrigated field of 25 acre that would fit into my operation
Thanks

You can certainly buy the land and let the person use it for free. But can't (that I know about) get Uncle Sam to reward you for doing it.
However, if it's an incentive to get the person to sell to you, then it could be worth it if you really really want the land.

Sunset said:

You can certainly buy the land and let the person use it for free. But can't (that I know about) get Uncle Sam to reward you for doing it.
However, if it's an incentive to get the person to sell to you, then it could be worth it if you really really want the land.

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Thanks, I got the answer I was after just a thought there might be a break for me in taxes.
I want to treat him well he has done a lot for me, and I don't need more income and he does. I would get to add some acreage to the ranch, and he could still have the say in who he rents it too and the price he rents it for. Also, a benefit to him is he pays no taxes and gets the income. Irrigated land tax isn't cheap just for that tax alone. He would benefit with a large lumpsum up front, gets rent and no taxes.

I would charge him rent ruffly equal to what the property taxes are...

street said:

Thanks, I got the answer I was after just a thought there might be a break for me in taxes.
I want to treat him well he has done a lot for me, and I don't need more income and he does. I would get to add some acreage to the ranch, and he could still have the say in who he rents it too and the price he rents it for. Also, a benefit to him is he pays no taxes and gets the income. Irrigated land tax isn't cheap just for that tax alone. He would benefit with a large lumpsum up front, gets rent and no taxes.

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It's nice of you to be generous to your neighbor. I would be just a bit concerned about the 3rd party he rents to. A "bad" farmer/rancher can damage land by bad practices. Just a thought to consider.

Koolau said:

It's nice of you to be generous to your neighbor. I would be just a bit concerned about the 3rd party he rents to. A "bad" farmer/rancher can damage land by bad practices. Just a thought to consider.

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Yes, that is a concern if I didn't know who rents it. The renter now is a four-generation rancher that lives about two miles from me. He is a good farmer and they are great people and I know them. The reason I would leave it up to him is that nothing would change. I wouldn't want to tip the apple cart and make wakes of any kind. No changes just a different owner. In this high-country small valley irrigated bottom land there is only 5 owners of this beautiful valley land. The valley ground has only 800 irrigated acres.

All owners are 4 or 5th generation owners except me. So, I want no change or as little change as I can make.

I think that Cathy has it right about it being considered a gift if ever there was an income/estate tax audit. It might get a bit messy on the seller's part though. Him renting property he doesn't own for income and at the same time, being the recipient of the same amount as a gift from you. Do you have a lawyer you can discuss this with? I hate saying that, but it might be the wise thing on your part.

I would also be concerned about liability should somebody get hurt while farming (or ?) on "your" property. At the minimum, I would want a contract requiring the other party to have liability ins. It might be as simple as a signed agreement. IANAL.

CRLLS said:

I think that Cathy has it right about it being considered a gift if ever there was an income/estate tax audit. It might get a bit messy on the seller's part though. Him renting property he doesn't own for income and at the same time, being the recipient of the same amount as a gift from you. Do you have a lawyer you can discuss this with? I hate saying that, but it might be the wise thing on your part.

I would also be concerned about liability should somebody get hurt while farming (or ?) on "your" property. At the minimum, I would want a contract requiring the other party to have liability ins. It might be as simple as a signed agreement. IANAL.

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Yes, I have family in Law I will have do the work. Some good points but he would though have to claim that rent money as income and pay taxes each year.

I am just not charging anything for someone to farm it and glad it is being used and taken care of. I guess I could ask one dollar per acre for rent.

Charging nothing or $1 makes no difference from a tax perspective. I don't know if it matters from a legal perspective.

To the IRS, what matters is the amount the neighbor and/or the farmer would have to pay for the use of similar property if the owner weren't trying to be a nice guy. Take that amount and subtract whatever you actually charge them, and that's a gift you're giving them. You have to report that gift to the IRS, but neither you nor they will owe any tax on it unless you've already given away $13.61M.

cathy63 said:

Charging nothing or $1 makes no difference from a tax perspective. I don't know if it matters from a legal perspective.

To the IRS, what matters is the amount the neighbor and/or the farmer would have to pay for the use of similar property if the owner weren't trying to be a nice guy. Take that amount and subtract whatever you actually charge them, and that's a gift you're giving them. You have to report that gift to the IRS, but neither you nor they will owe any tax on it unless you've already given away $13.61M.

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Thanks Cathy! Yes, I want it to be done legally so that wouldn't be no problem at tax time. The rent he would get would be about $2700 a year for those farmable 22 acres. Taxes are about half that amount.

Thank You very much for your expert help and advice. I appreciate that very much.

So, for $2700 he would receive in rent from the farmer I would need to report at tax time with a form 709. Just wanting to clarify what my tax and reporting obligations are. I will not hold anyone accountable for a responding just getting some knowledge of what I will need to do. I will talk to my lawyer and tax person also at time of next year tax season.

Thank You.

Being under the $18,000 limit per year, you probably won't even have to report that $2700.

In the sales agreement, maybe include something like "the seller has the right to farm and or rent the land for farming free of charge for a maximum of 10 years, ending on mm/dd/yyyy, or upon the seller's death, whichever comes first." That is just me. I know that many agreements are done via a handshake agreement. Sometimes things change over 10 years that were never thought of at the time of the deal. heirs, dissolved marriages, bankruptcy etc.

CRLLS said:

Being under the $18,000 limit per year, you probably won't even have to report that $2700.

In the sales agreement, maybe include something like "the seller has the right to farm and or rent the land for farming free of charge for a maximum of 10 years, ending on mm/dd/yyyy, or upon the seller's death, whichever comes first." That is just me. I know that many agreements are done via a handshake agreement. Sometimes things change over 10 years that were never thought of at the time of the deal. heirs, dissolved marriages, bankruptcy etc.

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Thank You very much, and that is what I was thinking since under the legal amount to report. Like I said I will have council make sure all is clean. As far a wording goes that is great wording and will give those words to council to be added in her way of writing up the agreement and logistics.

Thank You!