Conservation Reserve Program Contract Sign-up may be a wise decision!
CRP contracts are between the landowner and the USDA and vary in length but generally run for 10 or 15 years.
The price the USDA will pay at the next sign-up is based on a formula which looks at two factors: The CSR2 of the land and the average rent in the county for the prior year. The land and water must also have some ability to benefit from the CRP plantings. 1
SInce rents have been historically high, the Government offering for your contract is also historically high. Contracts for $350 per acre are not unheard of in North Central Iowa!
The CSR, or Corn Suitability Rating, takes into consideration the farmability and quality of the land; seldom do landoweners want to put in thier best land, but filter strips and the new STRIPS program are two examples of where a landowner can 'have their cake and eat it, too."
You can prevent nutrient and soil runoff AND get a great return on the land every year by enrolling it now into a CRP program, which includes the STRIPS program. (for info on STRIPS, contact the expert, Tim Youngquist email@example.com. ).
One hint, if the landowner is reluctant to enroll for 10 years, knowing that a $350 per acre return may not look that good in 7 or 8 years, keep in mind that a CRP contract can be cancelled without penalty upon the death of the landowner. If the landowner is, say, 90 years old, that is a factor to consider.
Also look at CRP contracts held by decedents. It may be wise to take them out of CRP for a year upon death, cancel the contract, then re-enroll next enrollment period. 2
Check on the current IRS position on taxability of CRP payments for non-farming landlords. 3.
This situation is possible when we experience a downturn and may last only for a year or two. It is work looking into!
1. For instance, "enrollment of the land would facilitate a net savings in groundwater or surface water resources"
2. Certain contracts may be ineligible for early termination. See, National Wildlife Federation, 2014 Farm Bill Conference Report Analysis, 2014, p. 3, http://www.nwf.org/~/media/ PDFs/wildlife/farm%20%20bill/NWF-2014-Farm-Bill-Analysis_final.pdf.
3. See, Roger A. McEowen, U.S. Tax Court Says Non-Farmer’s CRP Income is Subject to Self-Employment Tax, Center for Agricultural Law and Taxation, Ames, IA, June 20, 2013, http://www.calt.iastate.edu.
Mark Alan Newman is an auctioneer and an attorney, born in Clarion, Iowa, he practices at Newman, Thompson, & Gray PLC, in Forest City, Iowa.