GreenStone financial services officer Mark Oberlin shares five things buyers should consider when looking for a home site.
What location is right for us?
Determining the right location begins with an honest discussion about what’s important to you and your family and the lifestyle you lead. Some questions to ask yourself include:
- Is the commute to work manageable?
- Is the school district one that is right for your family?
- What non-work activities are important and are they close by to this location?
- What’s the minimum lot size needed for your family?
- Do you want a rural location or to be closer to town?
These and other similar questions are ones you need to formulate and then prioritize before you begin your search.
Is this home site the right one for us?
Once you have the location figured out, the next step is to identify home site options in the area that are best for you. Not every site is conducive to building your dream home. You will need to determine which is more important, the lot/location or the style of home you wish to build. Your builder can help you in this decision, as you will need to make sure that the home you want to build is possible on the lot or lots you are considering. For example, if the property is flat and you want to build a home with a walkout basement, it may not be possible or it may be at a much higher cost.
Is our dream home affordable on this location?
There are many reasons why a particular location may make your dream home unaffordable by adding costs that would not be factors at another location. This is where you will need to do your homework with the local governing bodies. Questions to ask include:
- Are there zoning restrictions on the type/size/style of home you want to build? Check with the township/sellers to determine if there are potential issues.
- Are there access issues to the property or to the house location on the property that you are considering? Again, the township can help provide an answer.
- Are there restrictions due to environmental concerns, such as water on the property that may result in additional cost/restrictions?
What site improvements will be needed?
With the help of your real estate professional or builder, you will need to determine what needs to be done to bring utilities to the property to live the lifestyle you want to lead. Things to consider are:
- What will it take to get electrical power to the property?
- What heat source do you want and what will be required get it, such as natural gas, propane, electric, heat pump or another system?
- Where is the water table in the area and what depth of well will be needed if a public water system is not available?
- What type of septic system will be needed if
a public system is not at the location?
Take time to consider the homes/properties around your site.
Most buyers fully consider the area in which their homesite is located at the present time, but often do not consider the adjoining properties and the future development options of those property owners. For example, if you are considering a location that has undeveloped property around it, could the property be developed into a multi-home complex and would you be OK with that?
Make sure you create your list of questions to ask the seller, the real estate agent, and the township officials. It is also important to look at the property several times and at different times of the day or week. Once you have done your homework, found the right property, and are ready to make an offer, be sure to work with your lender to make sure your dreams are attainable and within your budget!
Mark Oberlin is a financial services officer at GreenStone's Grand Rapids branch.
GreenStone will host a Connect Reception at the Great Lakes Fruit, Vegetable and Farm Market Expo.
Guests will enjoy appetizers and refreshments while learning important stockholder information and connecting with the GreenStone leadership team.
Dec. 7, 2016
4 - 6 p.m.
Monroe Room A
DeVos Place Conference Center, Monroe Room A
Grand Rapids, Michigan
All GreenStone members and guests are welcomed to attend the reception, regardless of whether or not they are registered to attend the Expo.
If you are attending the Expo, be sure to come see us at our booth, 809 and 810!
In honor of Veteran’s Day, GreenStone is proud to provide scholarships to eight Michigan veterans to attend the 2016 Farmer Veteran Coalition National Stakeholders Conference. Katy Tuckerman is an Army veteran and one of the scholarship recipients, and she recently spoke with GreenStone about her journey from the military to agriculture. We offer our sincere thanks to Katy, and to all veterans across the country, for such dedicated service and sacrifice.
For Army veteran Katy Tuckerman, the idea of returning to her family farm, Floodwood Creek Farm, in Blissfield, Michigan is both daunting and exciting. After serving eight years in the Army Reserves, Katy completed a Bachelor of Science degree in Environmental Policy and Decision Making in 2014. She’s currently pursuing a master’s degree at Ohio State University, and later this month, she’ll attend the Farmer Veteran Coalition National Stakeholders Conference with a conference scholarship from GreenStone.
Growing up in Blissfield, Michigan, Katy was raised on a 1,100 acre cash crop and beef cattle farm, which is still managed by her father and brother. After high school, she left Blissfield to join the ROTC program at Ohio State, but was unsure about what subject to select as her major. She decided the best course of action was to enlist in the Army after her first year in college. “The military gives you so many life experiences,” said Katy. “It really helps you understand what’s important.”
Tuckerman on deployment with with U.S. Army.
While in the Army she deployed to the Middle East, focusing on civil affairs and capacity building. This meant that she worked in collaboration with infantry to stabilize the area and help the local community members cope with living through war. While there she also collaborated with representatives from United States Department of Agriculture to assess local infrastructure regarding agriculture.
Next spring she’ll finish her master’s degree, which includes coursework on agriculture public policy and technical subject matters, such as soil conservation. With her father nearing retirement, she hopes to take that skill set back home, where she can join her brother on the family farm operation.
“Given what I have studied in school and my interests, I’d love to transition the farm to organic,” said Katy. She recognizes the hurdles involved in such a transition, and is preparing by starting to have conversations with her father and brother about what the move to organic could mean for the farm. “There are so many factors,” Katy remarked. “It would completely change the structure of the farm.”
Katy’s father and brother are open to the possibility, and that coupled with her passion for conservation would make the obstacles worth the effort. “My dad is the person I learned conversation from. If anyone taught me to be environmentally conscious, it was my father.”
By Corey Fanslau
A line of credit is a flexible loan that, not unlike a credit card, offers a limited amount of funds that can be accessed as needed and then re-paid immediately or over a pre-determined period of time.
As a loan, a line of credit will charge interest as soon as money is borrowed. Often these are revolving lines, meaning as you pay back the funds, they become available again and usually interest-only payments are due as a minimum. For example, if you have a revolving line of credit with a limit of $50,000, you could borrow $25,000 leaving an additional $25,000 available. Interest would be paid on the $25,000, usually monthly, but this will vary depending on the loan agreement.
An important detail to note is that lines of credit are not intended to be used to fund one-time purchases such as real estate, farm equipment, or cattle, although lines of credit can be used to acquire items which might not normally be underwritten for a loan. Most commonly, individual lines of credit are intended to smooth out the vagaries of variable monthly income and expenses, and to finance projects where it may be difficult to ascertain the amount of funds needed upfront. It is important to note that if you have a line of credit for business, be sure to only use it for business expenses.
Lines of credit can be useful in situations where there will be repeated cash outlays, but the amounts may not be known upfront or in situations that require large cash deposits. A good example is if a farm operation wants to purchase all of their spring seed at one time in order to receive a volume and cash discount from the vendor. If the farm doesn’t have enough cash flow to make such a large purchase, they can utilize the line of credit. This allows the farm operators to receive the discounts, pay the invoice in full, and pay off the seed bill over time from the farm’s monthly cash flows.
Lines of credit can be incredibly useful for farm operators, and as with any loan product, be sure to discuss all options with your financial services officer before making a decision for your unique farm business.
Corey Fanslau is a senior financial services officer with GreenStone.
Farmer Veteran Coalition, a national nonprofit organization that assists military veterans to embark on careers in agriculture, will host the third annual Farmer Veteran Stakeholders Conference—United We Farm—Nov. 30 to Dec. 2, 2016 at Michigan State University in East Lansing, Michigan.
For the third consecutive year, farmer veterans from across the nation will come together for the largest gathering of the military and agricultural communities for three days of educational tracks, farm visits, guest panels, distinguished speakers, community and camaraderie building, and much more. Hosted at Michigan State University’s spacious Kellogg Hotel & Conference Center, the conference unites farmer veterans with the agricultural, governmental and nonprofit groups that support them.
“Our national conferences have been invaluable to building this important farmer veteran movement,” said FVC Executive Director Michael O’Gorman, who started the organization in 2008 out of the back of his pickup truck. “We’ve seen dialog launched between our federal partners turn into national policy. We’ve seen important insight into what makes farming healing for veterans turn into valuable research. And we’ve seen the veterans themselves form a supportive community that has helped them immensely in their individual endeavors.”
Back by popular demand is the Successful Farmer Veterans plenary session where attendees will listen as a panel of successful farmer veterans share their story about how they got their start in agriculture, the hardships they faced and how they overcame them to thrive in their agricultural endeavors. Panel members include: viticulture and livestock producer Davon Goodwin (Army|OEF) of O.T.L Farms in Raeford, N.C.; maple syrup producer Sarah Orban (Army|OIF) of Thunder Bay Maple Syrup in Posen, Mich.; livestock producer Damon Helton (Army|OIF & OEF) of The Farm at Barefoot Bend in Lonsdale, Ark.; and row crop and hop producer Jed Welder (Army & Marines|OIF & OEF) of Trinity Farms in Greenville, Mich.
On the final day of the conference, Karen Besterman-Dahan, Ph.D., R.D., from the Center of Innovation on Disability & Rehabilitation Research will present attendees with an exclusive preview of the findings of a landmark Veterans Affairs study on the impact of veteran-oriented agriculture on transitioning veterans. Earlier this year, Besterman-Dahan and her team worked closely with Farmer Veteran Coalition to administer this study and will deliver the findings that could shape the path forward for veteran-focused agricultural initiatives.
Scheduled speakers at the conference include: Lanon Baccam, USDA Deputy Under Secretary for Farm and Foreign Agricultural Services and Military Veterans Agricultural Liaison; Lou Anna Simon, President of Michigan State University; Michael O’Gorman, FVC Executive Director; and Besterman-Dahan. Additional speakers, including the keynote, will be announced in coming weeks.
Military veterans may register for the conference at a special rate of $150.
By Kelly L. Tobin, EA, MBA
Low commodity prices may cause some farm operations to incur net operating losses in 2016. When farm expenses exceed farm income, and the resulting net loss exceeds all other types of income such as wages, interest, dividends, capital gains, rent, etc., a net operating loss (NOL) likely exists. In this case, a special computation must be done to compute the NOL, which can be carried back to obtain refunds of taxes paid in prior years and/or carried forward to reduce taxable income in future years.
NOL's incurred by non-farm businesses can be carried back for two years to obtain refunds of taxes paid, and forward for 20 years until fully absorbed. However, a farm net operating loss can be carried back five years to obtain refunds of taxes paid and forward 20 years until fully absorbed. Again, a special computation must be made to determine how much of the net operating loss is absorbed each year and what amount is available to use in the next succeeding year.
A taxpayer with a farm NOL may irrevocably elect to forego the five year carryback period and do a two year carryback, or can elect to forego the entire carryback period and only carry the loss forward. If there was little to no income tax paid in the past five years, it makes sense to forego the carryback period. The NOL elections are very important and must be made on a timely filed return or an amended return filed by the extended due date of the original return, which is Oct. 15 for a calendar year return. If the election to forego the carryback period is not made, the NOL must be carried back within three years of the NOL year, or the taxpayer could lose the NOL.
There are also special NOL carryback and carry forward rules for NOL's incurred in a federally declared disaster area. A three year carryback period is available for NOL's incurred in such an area. Therefore, a farm with a NOL incurred in a federally declared disaster area, is eligible for a five, three or two year carryback. The carryforward period remains 20 years. Of course, once an NOL is fully absorbed in either a carryback or carryforward year, it cannot be used in another year.
Except for C corporations, the NOL is computed on the individual's 1040 income tax return. Pass-through entities such as partnerships, LLC's taxed as a partnership, and S corporations do not compute the NOL. These entities simply pass-through the income and expenses to the owner's return where the NOL is computed. C corporations, which are a separate taxable entity, compute their own NOL's.
When a farm NOL is incurred, it is very important to analyze the tax situation in the prior five years. The tax benefit of a NOL depends on each year's marginal income tax bracket. The higher the marginal tax bracket, the more valuable the NOL becomes. NOL carrybacks and carryforwards can only be used to reduce federal and state income taxes. NOL's do not affect self-employment tax (social security for self-employed individuals). The carryback of a NOL requires the carryback year's tax returns to be recomputed. A separate filing is required for both the federal carryback and state carryback. NOL carrybacks can be very complex, but can also generate substantial tax refunds from prior years.
GreenStone’s tax accountants handled a significant number of NOL's over the years, and are very familiar with NOL's since the highly volatile commodity markets cause farms to incur NOL's more frequently than non-farm businesses. If your farm incurs a NOL, make sure your tax preparer understands how to properly analyze the carryback years and is familiar with the important elections that are available. GreenStone’s experienced tax accountants will make sure you get the largest tax benefit available to you!
Kelly Tobin is the Senior Tax Accountant & Product Manager for GreenStone.
Mike Kennedy, GreenStone Senior Financial Services Officer in Ionia, Michigan, shares his thoughts on the benefits of buying your own hunting land.
What is your favorite outdoor activity and why?
My favorite outdoors activity is hunting—especially turkey hunting in the spring and archery deer hunting in the fall. In my household, hunting is a family event and not just something I do alone.
Is there a particular place you love to go to experience the outdoors?
While I love to travel and hunt other parts of the United States, there is something special about being able to hunt on your own land. Owning my own parcel allows me to do habitat improvement projects, which improves quantity and quality of wildlife on my land. When you own your own land, you don’t have to ask anyone’s permission to make improvements. I also don’t have the worry that the parcel might get sold at a future date after I have spent hours improving the land. Some of the projects I do include planting food plots, planting trees, building wildlife ponds, and doing timber management. There is something special about seeing your hard work pay off.
What recommendations do you have for someone thinking about buying recreational land?
My recommendation to anyone looking to buy recreational land is to first determine your primary goal for the property. If possible, find a parcel that will require a minimal amount of work to get it how you want it. While any parcel can be improved, it is always easier to buy land that already has the features you are looking for without a lot of hard work.
Ready to buy your own hunting ground? Contact the experts at GreenStone today!
GreenStone and the Farm Credit System are a network of cooperatively-owned financial institutions, with each organization within the System organized as a cooperative. Cooperatives primarily pursue the same goals as conventional businesses – strong customer service, robust product offerings, engaged employees, and healthy financial returns – but their guiding principles are very different.
Since the first modern cooperative was founded in 1844, cooperatives have followed seven principles that determine who can join, how the business is run, and what activities the cooperative undertakes:
Principle #1. Voluntary and Open Membership
Cooperatives are voluntary organizations, open to anyone who meets their membership criteria.
Principle #2. Democratic Member Control
Cooperatives are democratic organizations controlled by their members, who help set policies and make decisions.
Principle #3. Members' Economic Participation
Members contribute equally to, and democratically control, the capital of the cooperative.
Principle #4. Autonomy and Independence
Cooperatives are autonomous organizations controlled by their members. If the co-op enters into agreements with other organizations or raises capital from external sources, it is done so based on terms that ensure democratic control by the members and maintains the cooperative’s autonomy.
Principle #5. Education, Training and Information
Cooperatives provide education and training for members, elected representatives, managers and employees so they can contribute effectively to the development of their cooperative. Members also inform the general public about the nature and benefits of cooperatives.
Principle #6. Cooperation among Cooperatives
Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
Principle #7. Concern for Community
While focusing on member needs, cooperatives work for the sustainable development of communities through policies and programs accepted by the members.
Over the next two weeks, we will explore more deeply how each of these principles is embodied in the organization and operations of GreenStone, all for the benefit of the member-owners who have, in turn, been responsible for the System’s success for 100 years.
By Kimberly Cool
When purchasing recreational land, the expense can seem to add up. First, there is the 20 percent down and the closing costs (which may add another 2 to 2.5 percent). Buyers will also want to factor in the monthly interest, the loan principal payment, any liability and/or structural insurance, and the real estate taxes. It may seem like a lot, but buyers shouldn't fret. There are a number of programs available that can be used to help reduce and offset costs for things such as the tax base and management costs.
There are several programs available in different areas; here are a few to get you started:
Ducks Unlimited offers a number of various conservation programs. The organization is a leader in wetland as well as waterfowl conservation. Through a Ducks Unlimited program, land owners may be able to offset the cost of restoring and managing the land to a wildlife habitat.
Quality Deer Management Association is another organization that may be able to assist with the cost of a land restoration project through education, seed costs, or deer management.
There are also a number of government-funded programs. The Qualified Forest Program (QFP) offers conservation programs and tax exemptions; the Conservation Reserve Enhancement Program (CREP) offers conservation, restoration and tax base exemptions; and the Farmland Preservation Program (FPP, also formerly known as P.A. 116) also offers tax exemptions.
These are just a few of the programs available to help offset expenses. Local university extension offices often have information on these and other programs in your specific area. The key is to research and take the time to get the appropriate forms submitted and the necessary inspections complete. After that, retreat to your peaceful paradise, and enjoy!
Kimberly Cool is a senior financial services officer at GreenStone's Cadillac branch.
Any farm operation requires careful planning on a
whole range of production, financial, insurance and succession planning issues.
A producer's choice of a legal business entity will have a significant effect
on the long-term success of those other decisions.
While there can be differences from state-to-state, sole
proprietorships, corporations and partnerships are the three general business
entities under which producers can organize their businesses. The choice
of legal business entity tends to vary by the type of farm operation. According
to the U.S. Department of Agriculture (USDA), about 92 percent of family farms
(where the principal operator and people related to that person by blood or
marriage own more than half of the business) actually operate as sole
proprietorships, which is the most basic organizational option.
Source: 2011 Agricultural Resource Management Survey
On the other hand, that percentage drops sharply for nonfamily farm operations, where the use of partnerships, corporations or other organizational structures is much more prevalent (chart above).
Here's a closer look at each business entity category:
Sole proprietorships. As previously noted, this choice is both common and simple, largely because it does not typically require licenses, permits or other governmental registration. This is a "pass-through" entity, meaning that a producer's farm income is subject to self-employment taxes and reporting, less any legitimate business deductions. However, this relative simplicity comes with two significant drawbacks. First, sole proprietorships don't shield personal assets in the event of bankruptcy or legal actions. And, the business entity dissolves when the owner dies, making it a poor choice for succession planning.
Corporations. The "C" corporation is the most well-recognized entity structure, and it is widely used in the non-farm business world for businesses that wish to raise capital via the sale of public stock. In a farm or ranch entity, those stockholders can be family members or non-related individuals who hold shares in the operation. A key advantage to the "C" corp arrangement is estate planning, since land or other assets held by the corporation are not subject to a step-up in basis upon the death of the major stockholder, thus reducing tax liability for those designated to receive gifts or other inheritances. On the other hand, a "C" corp has higher recordkeeping requirements and, as an entity separate from the individual stockholders, is taxed on both earned profits income and dividends paid to stockholders. Any losses in a "C" corp are not deductible.
Within a corporation structure, there are two other alternatives. Producers can also consider a Subchapter S corporation (or "S" corp). This entity provides the liability protections of a "C" corp – in which the reach of bankruptcy or litigation is limited to assets within the corporation – but is taxed in a similar flow-through manner as a sole proprietorship. In addition to income from production operations, the Internal Revenue Service (IRS) also requires an "S" corp to pay taxes on passive income, such as that from cash rent arrangements. A limited liability company (LLC) also offers several advantages, including easy setup, flexible structure, pass-through taxation and liability protections. However, Leibold says some producers may lean too heavily on how the LLC structure can protect their personal interests.
Partnerships. Put simply, a general partnership is a legal entity created by two or more people who want to run a business. This makes it a very good option for non-family farm or ranch operations, since this type of partnership is relatively easy to set up and manage, often by transferring cash or land to the entity in exchange for proportional partnership interests. Each partner's taxable interest is calculated by the cash put into the entity, in addition to the basis for any property contributed at the partnership's formation and any proportional share of liabilities. Like the sole proprietorship and "S" corp, each general partner is responsible for self-employment taxes that flow though in individual returns. On the downside, the general partnership structure does not shield personal assets from creditors, and each participant is liable for their share of contracts or agreements with the partnership.
Meanwhile the limited liability partnership (LLP) offers a more focused entity alternative. Under an LLP, the general partner (or partners) typically holds management authority, meaning that limited partners cannot initiate contracts or bind the group to financial obligations. Limited partners have greater liability protections under the LLP than general partners. Like the general partnership, the LLP is a pass-through entity for tax purposes.
How are major decisions handled? Consider this scenario: A young producer who actively runs day-to-day operations wants to expand the enterprise, while other stakeholders not regularly involved with farming are more interested in boosting cash flow and minimizing expenses. By carefully evaluating their individual situations, producers can choose the business entity that best suits their specific managerial requirements.
How will the entity accommodate expected – and unexpected – life events? While producers can build an organizational structure that encompasses normal estate or succession planning issues, they also need to consider the potential for unplanned events, such as an early death, divorce or disability. For example, if a general partner unexpectedly dies, the partnership agreement will dissolve, which can create significant tax issues for the remaining stakeholders. That same event would not create similar turbulence within a "C" or "S" corp business structure, since those entities are perpetual.
What happens if things don't work out? Anytime a farm operation has more than one participant that has contributed money, land or other resources toward the venture, there's room for disagreement. Under some circumstances, contentious issues can push relationships past the point of no return, which makes it important to plan for such contingencies before finalizing the choice of business entity.
1. Leibold, K., "Business Entities." (March 2014)
Ag Decision Maker, Iowa State University Extension and Outreach
2. Hoppe, R., Korb, P., and MacDonald, J., "Farm Size
and the Organization of U.S. Crop Farming." (August 2013) Economic
Research Service, U.S. Department of Agriculture
3. "Corporations." (July 8, 2016) Internal Revenue
4. "S Corporations." (August 1, 2016) Internal