Going Ag in TX

[WhiteRock]

I have a property that is +/- 70 acres that I would like to take to an agriculture status. I would like to do this for several reasons and am looking for input from you folks with experience and knowledge in this area. I will post as many of my reasons for doing this as I can think of at the moment so they can be part of the discussion as well.

- Like to see if I can figure out how to make money (total income support not required)
- I think this will improve the long term value of my property
- If I can get/qualified for the ag exemption, put that money into the property/business
- If successful, make this a retirement activity
- Spend time with my son, expose him to something beyond city life, practical experience, etc.

I am trying to figure out how the ag exemptions stuff works and what my qualifying options are. Seems complicated. Sounds like a 10+ year commitment. I have to be ag for 5 years before I can qualify. If I stop, there is a 5 year rollback tax. It seems that ag is really not wanted as a business. Anyway, I am trying to figure this stuff out.

35 acres or so has been cedar harvested. This has created some problems, but I am working through them. There is a lot of brush laying around and stumps remaining. I now have a stumpinator and brush piler. My machine seems quite productive and I think I can see my way through. I spent a week during the holidays working on the place and have 15- 20 acres looking pretty good. Still a lot to do. I am trying to figure out how not to burn my huge piles. I have some really big ones. It just seems to damage the ground. I can see now where piles have been burned from sometime back and the vegetation seems still to not have returned. I thought about having a forestry machine come in and mulch my piles. I would store the mulch for other purposes later. I just don't know if that is a wise appropriation of money. Burning is cheap. Perhaps there is a way to quickly restore the ground?

The land is fairly flat except for two places in the back where it tapers down and then back to a ridge. During this last holiday week, I cleared all of one of these areas and dug a pond. I plumbed it an made a dam. I have no idea if is going to hold water. I dug up a wet weather spring on the upper side. It turned out to be quite muddy, so I am not totally finish. Scooping up a yard of muddy dirt makes for some very interesting tractor operation, even with a Rihno TW84 on the back for ballast. I suspect I will be looking for a way to seal my pond. But I wanted to get it in place before the spring rains start. I need the water for my livestock. At this point I have not researched the amount of water different animals require.

I have also been designing water collection systems for my buildings to supplement my water supply. I have some pretty good research numbers on this from my area. We will see how this goes the first year. I guess I could dig a well. I don't know if this is a wise appropriation of money.

I have not yet determined the ag segment where I can be most successful. Perhaps I will get some good ideas and experienced insight here. Currently I am focused on clearing, fencing, getting to pasture, and getting the business paperwork/organization in place.

I grew up on a farm. I hated it all the way up, left and went hi-tech. Now I'd rather do this kind of stuff. But I actually prefer the money part of tech. /forums/images/graemlins/smile.gif

Any input you have will be appreciated. Sorry for the long post.

Aiming for success...

 

[beenthere]

On the surface, I suspect contacting an accountant/lawyer/tax advisor who will advise you on the state laws, federal laws (IRS and USDA) and policies that affect your decision would be the way I would go.

Other than that, seems you can proceed in the direction of having your farm for the reasons stated, but it may be at a risk of qualifying for all the tax breaks that the 'farm' might get. Having just 70 acres in in the state of Texas may be like a postage stamp in comparison to the ranches there, from what little I know and hear about.

Many upstart farmers get caught in the rules and policies in place that are trying to prevent some tax dodging, and you need to work your way through these roadblocks (might not be easy if the right things were not set up when you purchased the property).

I could be a long ways off-base on my thoughts here, but I wish you good luck in your venture. /forums/images/graemlins/wink.gif

 

[Marine1]

Whiterock,
Not sure what county you are in but the County Extension Office is who you want to talk to. They can tell you which animals qualify and what the acre to animal unit ratios are.
The other office to talk to is the County Tax Appraiser for property. They can give you all the rules as far as their office is concerned.
The five year rule is correct as long as there was no Ag before you took ownership of the land.
You don't qualify for a Wildlife Management if your property wasn't Ag the previous year. You won't need livestock on your property if you have a Wildlife Management Exemption. The Parks and Recreation sets up the Wildlife Exemption status for you. You can try to get a waiver on the 1 year rule but that is very difficult if not impossible to get.
If the property is Ag exempted, which you say it isn't, you can rest the land for 2 out of 7 years and keep your Ag status. This means again you don't have to have livestock on the property during the two years. The 2 years can be consecutive or broken, it doesn't matter.
These are some of the rules out there.
Check out this web site also www.txcountydata.com Just click
on your county name and this will also answer some of your questions and get you the info on who to contact.
I hope this helps on some level.

 

[stevenf]

WhiteRock
I don't know whether to reply or not I'll probably end up in trouble with the throngs of tree huggers. We bought our ranch in Boerne in 1999 it was already in AG the easiest way to achieve AG status first off is to have the land paid off or not comingle the ranch payments with the AG business like say maybe you lease it from yourself at a very uninflated price as one of the things Uncy Sam looks at is whether you are farming or hobbying if hobby is determined you'll never qualify. Our ranch is 347 acres but its in the hill country so farming is a little far fetched for a profit since tillable acres is probably about 30 the rest is up or down and rocky. You can easily qualify in the ranching arena though just get some spanish goats young and let them eat and sell them every 2 years or so you will need very good perimeter fences or your neighbors will be sharing in your cabrito. Now heres what we did the ranch was old inheritance property for the previous owners and they had grazed cattle for the writeoff and it didn't take many cows maybe 1 for 15 to 20 acres they were leasing the grazing rights to a neighbor which is also a posibility for you thats what my dad did in Bandera for years. When we bought it we immediately started the proceedings to move it into wildlife management as first it has to be in AG which grandfathers in to new owners but the property had to of made money 5 of the last 7 years in AG to qualify to switch and we didn't want to fool with cows or goats and the ranch is far from being paid off. The county appraiser approved our switch and wallah we are wildlife managers with no requirement to make a dime and everything is tax exempt for it just like farming. Now to get even better once we got the ranch to where we wanted it wildlife wise we opened the ranch to hunters at $2,000 per gun for the season running from mid october thru mid January. We are making a killing and enjoying the ranch to boot. There is a slight hitch in the wildlife exemption you have to select some species of native wildlife to concentrate on and they provide a list of different things you have to do for them like water, food, shelter, erosion control etc. all of which we would do anyway because of our hunters. You also have to submit a writeup every year of how your attempts worked and what you did. In the mean time you and your son can be farming as much of the land as you want and sell your produce unaffected by your need to show a profit or any of the other AG related problems. I hope this helps I know it has been great for us. Also there was a mention of needing a large ranch to be in AG exempt status each county appraiser is different but most range in the 10 to 15 acres or larger determination.
Steve

 

[WhiteRock]

Beenthere, thanks for your feedback.

I agree with the setup portion. I want to get organized properly as a business so I don't have trouble with exemptions, depreciation, etc. I don't know if typical ranchers/farmers file all these business papers or not. I am just trying to decide if I want to file as a proprietor or LLC.

With the IRS it appears I can start my business, and with it being new I have 5 years to make a profit. I think the consequences of not making it is losing previous years tax deductions. A little scary.

I have been looking around for professional services, but it seems that most folks don't know or don't want to deal with ag. I don't know how different it is. I think maybe I just haven't looked hard enough yet.

 

[WhiteRock]

Marine1, thanks for your feedback.

I intend to talk with my County Extension Office. I am just not sure what kind of information their office can provide. I have a ton of questions. I have a link to their website, but it doesn't seem to help with that. I guess I can just call and ask.

My understanding is that they can help with things like:
- Kinds of grasses that grow well in my area
- How to get them started and who might can help
- Livestock info, number/acre, whats working in my area
- Problem areas
- Maybe offer insight on my pond

Sound about right?

Would they know folks providing professional services to help get setup? Accountants, lawyers, tax advice, etc.

Sounds like I need to talk with my Tax Appraiser office.

I did not know about the Ag rest years.

I have the names/numbers of these folks. Now I just have to collect the information.

Thanks for the help.

 

[WhiteRock]

Stevenf, thanks for your feedback.

It sounds like you are suggesting the Ag business lease the property from me. I have thought about this. I have it on my list to discuss with someone that can offer tax advice. I'm not sure about the co-mingling pros and cons. Sounds like it would remove my option of leasing to someone else. The business wouldn't be much use without land....

I was thinking I read some of the IRS pamphlets and can pass the hobby test. I guess I will go back and double check. Do they call it that?

Very interesting history on your place. I like hearing about these scenarios. The wildlife effort actually sounds interesting.

I have also consider the hunting lease option. I should be able to do this along with livestock, right? This would really help the balance sheet. I realize there may some risk, but I would hope not. Might have to pre-qualify my hunters(show pics)..... goat..... deer.... goat.... deer..... got it? /forums/images/graemlins/smile.gif

I want to also investigate the goats. I see a lot folks with goats and sheep. That may be my best options are to make money with livestock.

 

[Bird]

Like Marine1 said, I talked to the County Tax Appraisor to learn what was required and how to get the agricultural appraisal on the land. Then I talked to the County Extension Agent about what would grow well in the area, what might make a profit, etc. Both were very helpful, both on the phone and in person.

 

[sneaky_pete]

</font><font color="blue" class="small">( I am just trying to decide if I want to file as a proprietor or LLC.)</font>

I wouldn't do anything as a sole proprieter - you and your family are completely exposed to every tax law, every liability, every lawsuit that could ever happen. Incorporation is relatively easy; if you had anyone to help you who's done it before, you could do it online for about $250. I paid my CPA $800 to do it for me several years ago, and it was well worth it. Make sure you have or get a CPA who understands small corporations and self-employment. I can't stress enough what a HUGE benefit incorporation is.

 

[stevenf]

WhiteRock, your right filing for wildlife status after the property is in AG in no huge way changes your AG uses as a matter of fact if you look up the wildlife management area of Texas Parks and Wildlife I think it has your options there and for sure one of them is rotating your stock to different pastures on a set basis to give the land time to recoop. If you don't find the info there just do a google for texas wildlife management you'll get days worth to read. Bear in mind that you have to be in AG status first for I think 5 years before you can switch to wildlife.
Steve