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37
<br />Second Lancaster County Farm Has Easements Sold - -
<br />rhrougrh State's Installment Purchase Agreement (IPA) Plan
<br />- __ —A-T.. (1 9(1119. -
<br />Dotal of Five YA rrope -iLun rarr +- -va a.- ---
<br />A 110 -acre crop farm in
<br />✓fount Joy, East Donegal
<br />,ownship, becomes the
<br />second in Lancaster County
<br />ind-the fifth in the state to
<br />lave an easement sold un-
<br />ler the Pennsylvania De-
<br />3artment of Agriculture's
<br />installment Purchase
<br />9greement (IPA) plan. The
<br />transaction was set to close
<br />on December 30, 2002.
<br />Under the IPA plan, farm-
<br />ers can gain better tax ad-
<br />vantages when selling their
<br />easements, by deferring all
<br />or part of the purchase price
<br />- and the resulting capital
<br />gains taxes - for up to 30
<br />years. (Background on the
<br />IPA is included at the end of
<br />this article.) Since the pro-
<br />gram was launched in
<br />Pennsylvania in early 2002,
<br />five properties have partici-
<br />pated in U?AS: two in Lan-
<br />caster County, and one
<br />each in Chester, Butler, and
<br />Wyoming counties.
<br />Located on Trout Run
<br />Road, the Mount Joy farm
<br />has been owned by
<br />Franklin and Joanne Zink
<br />since 1965. Throughout
<br />that time the Zinks have
<br />leased the property to vari-
<br />ous farmers, the most re-
<br />cent of whom is using the
<br />property to grow corn, soy-
<br />beans andwheat. TheZinks
<br />originally purchased the
<br />land because it is adjacent
<br />to another property they
<br />own - a 72 -acre parcel on
<br />which Mrs. Zink operated
<br />the Donegal Mills museum
<br />and restaurant complex for
<br />many years. "We wanted to
<br />own a farm, and when the
<br />neighboring property be-
<br />came available we saw it as
<br />a good opportunity," Mr.
<br />Zink says.
<br />A local developer, Mr.
<br />Zink had no interest in sell-
<br />ing the farm property for de-
<br />velopment use. "I really
<br />wanted to preserve the
<br />land," he says. "It's been
<br />such a wonderful thing to
<br />r -
<br />have this farmland. and we
<br />wanted to keep it that way."
<br />He says the state's IPA op-
<br />tion made the decision at-
<br />tractive from a financial
<br />standpoint, both for the
<br />couple and their heirs. "In-
<br />stead of taking a lump sum
<br />payment upfront, well re-
<br />ceive tax -free interest each
<br />year, which will provide us
<br />with tax advantages," he
<br />says. "Whenwe're gone, our
<br />four children will start to re-
<br />ceive tax -free interest that
<br />is t,
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<br />AGRIBUSINESS SERVICE, INC.
<br />JOE'S TRACTOR SALES
<br />Joe Moore Road, off Hasty School Road
<br />LONGENECKERS INC.
<br />RD 2, Box 121 PA
<br />Ashland, VA - 804. 7984020 or
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<br />610.845 -2911
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<br />717- 463.2735
<br />can help supplement their
<br />incomes." ,
<br />Background on the
<br />Installment Purchase
<br />Agreement Plan
<br />The IPA plan is designed
<br />to enable farm owners to in-
<br />crease what they get
<br />keep, and not just wi
<br />they get, when selling east
<br />ments. The sellers can opt
<br />to defer all or part of the
<br />easement's purchase price
<br />for up to 30 years and defer
<br />capital gains tax for the
<br />same period. hi the interim,
<br />they receive interest twice a
<br />year on the outstanding
<br />balance; as with a munici-
<br />pal bond, those interest
<br />payments are exempt from
<br />federal and Pennsylvania
<br />state income taxes. Later,
<br />the sellers' heirs can choose
<br />to sell the IPAs in the mu-
<br />nicipal bond market to pay
<br />estate taxes or capital gains
<br />taxes.
<br />Capital gains tax is due
<br />when a seller receives pay-
<br />ment for appreciated land
<br />or other assets. Capital gain
<br />is the difference between
<br />the sale price and the value
<br />of the property when it was
<br />first bought or Inherited.
<br />The IRS taxes capital gains
<br />at a maximum rate of 20
<br />percent, and Pennsylvania
<br />at a maximum 2.8 percent
<br />rate.
<br />Howard County, Mary-
<br />land has used 30 -year IPAs
<br />to buy easements on 9,200
<br />acres from 81 sellers since
<br />1989. Similar program°
<br />underway in Harford
<br />Anne Arundel coun,
<br />Maryland; Virginia Beach,
<br />Virginia; and Burlington
<br />County, New Jersey.
<br />PDA is recommending
<br />IPAs to county farmland
<br />preservation boards be-
<br />cause the structure mini-
<br />mizes cash needed to close
<br />on purchases. The rural
<br />character of many parts of
<br />Pennsylvania will be lost
<br />forever unless development
<br />rights are purchased soon.
<br />1PAs permit as many as five
<br />times more purchases in
<br />the short term than if cash
<br />were paid for each acquisi-
<br />tion.
<br />At the time farmers apply
<br />to their counties to sell de-
<br />velopment rights, they'll be
<br />asked to choose among an
<br />all-cash or installment pur-
<br />chase, or some combination
<br />of the two. After the terms of
<br />the sale are agreed upon,
<br />the purchase is submitted
<br />to PDA for approval. Closing
<br />can occur within six
<br />months of state approval.
<br />Additional information
<br />regarding installment
<br />purchase can be obtained
<br />from each County Farm-
<br />land Preservation Board,
<br />or by contacting
<br />Wolfgang at the PD!
<br />reau of Farmland P,
<br />vation at (717) 783 -3167
<br />or dowolfgang@
<br />state.pa.us. To discuss tax
<br />treatment of easement
<br />sales, contact Michael W.
<br />Evanish, Manager of the
<br />Pennsylvania Farm Bu-
<br />reau's MSC Business Ser-
<br />vices, at (717) 731 -3546
<br />
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