To sheep or not to sheep

[turtletribe]

We are buying a 5 acre parcel with a home in Pepeekeo. What kind of tax strategy are you using to help minimize things. I have heard that putting sheep on the property helps with keeping the grass down some but also has a tax benefit. Any enlightenment would help.

[Carey]

That is utilizing the taxes for "agricultural/forest land" vs residential... homeowner is still lower than either of those.. If you go with ag zoning on the land,the improvements are still taxed differently than the land (residential for the house/ag for the land...)... best to look at the tax rates to decide which is best for you

This county is one that actually taxes very high for conservation land... which discourages this zoning!

Tax rate page:
http://www.hawaiipropertytax.com/tax_rates.html

[turtletribe]

Thank you Carey. So it appears that there would be no tax benefit from raising livestock on the property then. Homeowner tax rate seems the lowest.

[Carey]

There is a benefit IF you do not qualify for homeowners tax rate(dual county/state residents do not if they occupy any less than 50.1% time, along with some other situations...including the size of the land...)

[terracore]

Sheep are livestock. If you have one, you are a farmer and/or rancher. Farming and ranching are businesses, and business expenses are tax deductions.

Any expenses for livestock (fencing, feed, purchase of livestock, medicine, vet visits, farm machinery / vehicles, mileage driven to get supplies, buildings erected to hold supplies/animals, money paid to people to feed animals, etc) is a state and federal tax deduction for your farming business. What is not tax deductible is the purchase of land.

You can either pay taxes when you buy food at the store, or rack up tax deductions on the infrastructure for producing your own.

Most farms lose money, that is why they are subsidized by the government. There are other subsidies in the form of direct payments that are outside my experience. Maybe somebody else can chime in on that.

Need to add, most "off the shelf" tax programs like turbotax will calculate your farm expenses into your normal annual filing.

Also, I'm told that dog food, including working herders or livestock guardians, is not a valid tax deduction.

[csgray]

As I recall you are only allowed to lose money on ag for a certain number of years, or they quit letting you take the write off and declare you a hobby farm, which is not tax deductible. Anything to do with horses is always looked at more closely, with ornamental nurseries right behind.

Carol

[Tink]

Also helps to have a detailed business plan for your farm to keep things in "order" and help,keep the tax man at bay, should they request an audit on your losses. A good friend of mine had a small (10-12 head) cattle venture where he grew the hay on site, etc. with the heavy fluctuating price of beef he had quite a few losses and his business plan helped him track accurately to please the governing parties into giving him mercy when he came to the "no possible recovery" state. In some instances, I was told that your "Farm Business" is not recognized by the Tax Board unless you have a business plan, but neither myself, and my friend did not share of this, but his books told him exactly where his money was disappearing to make a wise, solid decision. Any thoughts to add from the professionals here?

Are you a human being, or a human doing?

[missydog1]

Re the ag exemption
The tax office in Hilo can answer questions about how it works, and there is an online description of the rules, including the application IIRC.

I know that the ag exemption does not go by having the sheep or the fruit trees alone; what they want are receipts for sales.

Before acquiring sheep, you should think it well through, IMO, whether you want to care for sheep, and whether you want to market sheep, because by filing this you are committing to doing so.

I think it would be a bit rushed to buy sheep as a "strategy," and it would be better to talk to local livestock farmers and plan what you are doing first. There are farmers in this area with whom you can network.

There was a series of Practical Ag workshops going for a while. The non-profit organization I'm part of could likely provide contacts. (Rural South Hilo Community Association.)

The general community in your new area, which is mostly old-timers, is unhappy about the arrival of "gentleman farming" to rural Hilo -Hamakua. They want farmers who are passionate about farming, and it would really turn them off to hear about farming primarily as a tax strategy.

It's a small community, and some of the parcels in Pepe'ekeo, those that are part of the high end subdivisions (you didn't say where you are buying, and I'm not assuming), are already a source of controversy in the community for seeking to transform ag land into residentia, which includes ag activity that is basically hobby farming or is done for the tax exemption.

I'd say know where you are and who is around you, and take your time. You can always save a bit of money down the line, but you only get one shot with your first impression on your new community. Either you are moving here to join this community or to be another mainlander moving in who doesn't get the old ways. It's really so worthwhile not to be seen as the latter.

Pepe'ekeo is not like Puna where newcomers are common and mix in quickly. It is an area where people have settled for generations, and everyone knows everyone, so you will be the new guy and your actions will be observed. Just how it is here.

Having lived in this area on and off for ten years, I would say that if you want the community to welcome you, reach out to your specific community about what to do, and not through the internet. The internet is fine for info on how the taxes work (as long as you also talk to the Real Property Tax office), but the best thing you can do is to go to the people of your area.

Just don't discuss the idea of farming primarily to lower your taxes with anyone who has roots in the area. It won't sit well.

Welcome to one of the most beautiful areas of Hawai'i, in my view and that of most who live around here. The people here are the best once you get to know them.

[csgray]

Remember there are different rules for declaring an ag business for income tax purposes and for Hawaii County property taxes.

Carol