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February 18, 2005 Breaking
Through the Glass Ceiling in Preserving Farmland By
Congressman Jim Gerlach and Congressman Joe Pitts It’s
no secret. Despite the fact
that agriculture is still the state’s leading industry, we’re losing State
and various local agencies have undertaken various farmland preservation
programs in order to reverse, or at least slow, this trend.
These programs have achieved remarkable success through sharing the
cost of preserving farmland. But limitations presented by the federal tax
code present a glass ceiling, hindering the effectiveness of such
programs. Current law allows a farmer to sell the
right to develop his land (the development rights) to any person for the
fair market value of the rights. For
the asset rich but cash poor farmer, employing this strategy offers an
influx of cash to cover the costs of upgrading facilities, purchasing new
equipment, acquiring more land, paying off debts, or hiring more
employees. The tax code however, subjects the sale
of development rights to capital gains taxes.
In doing so, it asks farmers alone shoulder the cost of using this
means to preserve farmland. This
is particularly burdensome for farmers who have owned their land for a
long time, or farm land that has been in the family for generations.
These farmers acquired land for a fraction of what it’s worth
today. To sell the development
rights today means they would pay more in taxes than they paid for the
land decades ago. One That’s why we introduced The Family
Farm Preservation Act of 2005 this month.
Our legislation makes a simple change in the tax code to shift the
tax burden for preserving farmland from farmers to developers.
First, the bill exempts proceeds from
the sale of development rights to a qualified non-profit organization or
government-run preservation program from capital gains taxes.
Farmers are then free to use the proceeds of the sale to best suit
their own needs. Second, our plan focuses relief where
there is greatest need. The
challenges facing every farmer are particularly acute for farmers in
counties like Third, the bill requires the culprit who
builds on the land to forfeit the amount that would have been paid in
capital gains taxes under current law plus interest to the government.
This severe penalty increases with time.
Rather than penalize farmers up front for trying to preserve their
land, we ask developers to bear the cost of plowing under our family
farms. This strategy works well because it
capitalizes on market forces, not government mandates.
A farmer who sells the development rights to his land makes it far
less attractive to developers, effectively lowering the market value of
the land along with his property and estate tax bills, the latter of which
reach as high as 60 percent. These
other taxes must also be addressed to save farmland across the nation.
The Family Farm Preservation Act follows
a similar effort by the United States Senate.
While it did not pass before Congress adjourned last year, the
Senate’s charitable giving bill (S. 476), provided
a 25 percent exclusion from capital gains on the sale or exchange of
property development rights to a qualified organization for conservation
purposes. Our bill merely
increases that percentage to 100 percent in order to maximize the farmland
we preserve. Our area has a rich farming heritage.
Families have farmed this land for generations, some tracing their
ancestry to the days of William Penn.
By exempting the sale of development rights from the capital gains
tax, the Family Farm Preservation Act gives farmers the opportunity to
keep their farms in the family and in business.
This simple change in the tax code will help preserve our state’s
beautiful open spaces. Congressman Gerlach represents Congressman Pitts represents #
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