Buy Smarter

Experts discuss common land-buying pitfalls and how to avoid them.

- By Sophie Winkelpleck

When the rare opportunity arises to buy farmland — arguably a farmer’s most valuable asset — what are some things to keep in mind? Three experts offer their advice to streamline the land-buying process.

Organize Your Finances

Curt Covington, senior director of managed accounts at AgAmerica, said, “Your accountant and lender will thank you” for having your financial records in order. He said it’s important to have on hand an up-to-date balance sheet and other key financial documents such as tax returns, bank statements, equipment lists, and yield sheets.

“Lenders ask for information, and they ask for that information for good reason, so providing it to them properly and not in a drip, drip, drip approach is what lenders expect,” Covington said.

He also added that showing trustworthiness as a borrower is a key component in the lending process.

“I’ll do business with a borrower that I have complete trust in, even if their financial records aren’t where they should be,” Covington said. “So character absolutely matters, because if you have character, I know you'll do everything possible to repay my loan in a timely fashion.”

Prepare for Tax Responsibilities

Kristine Tidgren, director of the Iowa State University Center for Agricultural Law and Taxation, explained what tax implications to keep in mind when buying land. She said besides the value of the land, make sure to understand the value of certain assets on the land.

“We have to be really careful when we buy farmland that we are properly allocating the purchase price to the fair market value of the different assets we are buying,” Tidgren said. The reason, she said, is some assets, such as drainage tile and fencing, qualify for Section 179 or depreciation deductions, whereas the land itself is not depreciable. Having proper documentation to justify assigned values is essential for a possible IRS audit, according to Tidgren.