HARRISBURG, Pa. – The Pennsylvania Department of Agriculture’s Installment Purchase Agreement plan is growing increasingly attractive to area farmers, including the owners of a Butler County farm that have opted to use the program.
In a transaction set to close on July 2, the 161-acre Adams Township property will be preserved as farmland through the sale of its easements.
Under the plan, farmers can gain better tax advantages when selling their easements, by deferring all or part of the purchase price – and the resulting capital gains taxes – for up to 30 years.
Properties in Chester County and Lancaster County have already closed on IPA plans earlier this year, while a Wyoming County farm is set to close on June 28.
“The character of many rural areas in Pennsylvania will evaporate unless we preserve farmland,” said Sam Hayes, Pa. Secretary of Agriculture.
Concerns. Currently owned by Gordon Marburger, the Adams Township dairy farm has been in the Marburger family for 125 years. Marburger says he was concerned about the tremendous pace of development in neighboring Cranberry Township development that was beginning to impact the open space in Adams Township.
“We needed another source of income, but we didn’t want the property turned into homes,” he said. “We’ve seen so many other area farms fall to development and didn’t want to face that possibility.”
Marburger had been applying unsuccessfully to the county’s land preservation program since the mid-1990s and says the recent availability of the IPA plan made the farm’s preservation a more viable option.
“The greatest benefit of the IPA is that it furnishes us with enough regular income to maintain the farm,” he said.
Marburger will receive tax-exempt interest income on the easements’ sale over a 20-year period, avoiding the capital gains that would result from a lump-sum payout.
“It’s a good way to preserve the land, generate additional income, and provide for our eventual retirement,” he notes.
Background on the Installment Purchase Agreement Plan
HARRISBURG, Pa. – The Installment Purchase Agreement plan is designed to enable farm owners to increase what they get to keep, and not just what they get, when selling easements.
The sellers can opt to defer all or part of the easement’s purchase price for up to 30 years and defer capital gains tax for the same period.
In the interim, they receive interest twice a year on the outstanding balance; as with a municipal bond, those interest payments are exempt from federal and Pennsylvania state income taxes.
Later, the sellers’ heirs can choose to sell the IPAs in the municipal bond market to pay estate taxes or capital gains taxes.
Capital gains tax is due when a seller receives payment for appreciated land or other assets. Capital gain is the difference between the sale price and the value of the property when it was first bought or inherited.
The IRS taxes capital gains at a maximum rate of 20 percent, and Pennsylvania at a maximum 2.8 percent rate.
Howard County, Maryland, has used 30-year IPAs to buy easements on 9,200 acres from 81 sellers since 1989.
Similar programs are under way in Harford and Anne Arundel counties, Maryland; Virginia Beach, Virginia; and Burlington County, New Jersey.
At the time farmers apply to their counties to sell development rights, they’ll be asked to choose among an all-cash or installment purchase, or some combination of the two.
After the terms of the sale are agreed upon, the purchase is submitted to PDA for approval. Closing can occur within six months of state approval.
