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Country Discussion Topics
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Advive on family farm takeover needed
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Jay    Posted 05-17-2002 at 10:19:49       [Reply]  [Send Email]
My brother and I have been looking for a way to
take over our parents dairy farm. We would
basically just be takeing over all there debt (a
substantial amount)for the cattle and machinery
and then buying a farm. My parents wish to keep
there farm which is small and raise heifers and
crops and give up dairying. My brother and I have
found a nice farm and have got the financing to
buy it and take over our parents debt. We dont
know how to proceed from here as far as setting up
a partnership. We are also concerned about the
amount of taxes our parents would have to pay.
The debt we are takeing from them is equal to
what the cattle and machinery are worth so they
are not going to get any actual money but will be
debt free. From what I understand that even
though they will not receive any money they will
still have to pay huge taxes? Another thing we
were wondering about has to do with the new farm
bill. I understand there could be some
retroactive milk price support back to december
2001. Would my parents lose that money if my
brother and I takeover? Any advice and suggestions
are very much appreciated Jay

Jerry S    Posted 05-18-2002 at 10:38:18       [Reply]  [No Email]
My parents are about that situation as well. Problem is I know that there is no way to make a profit doing what they are trying to do. Best thing dad can do is keep enough stock cows to keep the pasture mowed and do a cow calf deal as a hobby. He has been subsidizing the farm for years with an off farm job. very expensive hobby. I would not jump into debt real far to start a farm operation because even with a paid for farm and equipment, you can still loose your shorts quickly. Lots of risk and lots of work. I know a guy who has a modern handed down dairy farm he runs very well but makes only half what he could if he had a job in town but works 7 days a week etc. Do what you enjoy but don't loose the farm over trying to help. Might be best to sell it off and pay the debt then start slowly building into a herd.

Jay    Posted 05-17-2002 at 20:04:26       [Reply]  [No Email]
Thanks everyone. This is going to be quite a bit
more complicated than we thought. One good thing
is the farm we are hopefully buying has alot of
feed inventory and the current farmer is going to
plant this years crops. This should give us time
without having to worry about getting crops in on
the new farm We hope to find a way that will
benefit everybody we've set up a meeting with an
accountant for next week. We're supposed to think
of a name for our farm any ideas?

john    Posted 05-17-2002 at 18:48:25       [Reply]  [No Email]
Remember this is a business transaction. Do all the research you would do buying from someone you do not know. Check title, business model,etc. If you want to help your parents, that is one thing. If you want to run a dairy that is another. You need expert help (esp. accountant.)

DeadCarp - 2 cents worth    Posted 05-17-2002 at 17:59:19       [Reply]  [No Email]
Depending on your folks' age and health, best thing is to get the property transferred legally as early and cheap as possible. You'll be charged taxes on the going rate anyway, but knowing what i do now, i'd suggest buying it for a dollar or something and getting that dang paper to the courthouse right quick.

A nursinghome or medical outfit can lay claim as far back as 3 years in our state, so keep that in mind. What does that mean? It means if one of your parents gets laid up awhile, even 3 years from now, the law can force the sale of your farm to pay the bill! How fair is it? You tell me - I see a lot more farmers than doctors going broke, right?

So the very best plan i've figured out is - when you start getting grey hair, that's the time to start deeding property over. It won't fit in a pine box anyway, and IF you plan right, you might be around to help see it stays in the family.

kraig WY    Posted 05-17-2002 at 14:28:01       [Reply]  [Send Email]
Need to talk to an accountant, preferring one that deals in ag. Accountants are like advertising. You pay a little up front but you'll get it back ten-foul in the future. With brothers a partnership will work but it needs to be set up propertly to fit the 1065 and k-1s before the transfer. There are tax implecations regarding your purchase of debt for both you and your parents. Debt if handled right can be an asset to you for tax purposes. So in short spend the money for a good accountand (its tax deductable and will save you a lot of money in the end run).

Les...fortunate    Posted 05-17-2002 at 11:58:52       [Reply]  [Send Email]
Like big fred said.
My only suggestion: think corporation, not partnership. That's about the only thing I remember from the 2 law classes I had in college.

Drill    Posted 05-17-2002 at 18:00:17       [Reply]  [No Email]
Expert advise is the way to go. Like Les says look at incorporating the farm with the farm company holding the debt, you and your brother as share holders, your parents could also retain some shares. Hope this helps

big fred    Posted 05-17-2002 at 11:22:47       [Reply]  [No Email]
Sounds like you need to be talking to a real sharp tax man, not a bunch of folks on this board. Don't get me wrong, there ain't nothing wrong with this board, but it ain't the place for the individual professional advice you are looking for.

That said, I would imagine that your parents' debts were incurred in the course of doing business, and as such were probably written off in previous years, so there would probably be taxes owed on some if not most of it. If you and your brother are both married, you, he and your wives could each give a gift of up to $10,000 annually to each of your parents that they could then use to retire their debts (again, check with a tax man on this) so you might be able to retire up to $80,000 annually this way, tax free. Good luck.

jamo    Posted 05-17-2002 at 10:42:19       [Reply]  [Send Email]
I don't know anything about farm bills, or the cost you are incurring, but I do know that your parents can take $250,000.oo apiece on the sale of a primary residence. Are they staying in their home?

soaper    Posted 01-14-2003 at 13:19:39       [Reply]  [No Email]
The 250,000 dollar tax exempt status DOES NOT apply to farmland or it's primary residence.

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