Link to "The Californian" Article

If an individual has income from investments, the individual may be subject to net investment income tax. Effective Jan.  1, 2013, individual taxpayers are liable for a 3.8 percent Net Investment Income Tax on the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds the statutory threshold amount based on their filing status.

The statutory threshold amounts are:

• Married filing jointly — $250,000,
• Married filing separately — $125,000,
• Single or head of household — $200,000, or
• Qualifying widow(er) with a child — $250,000.

In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities.

Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.

Additionally, net investment income does not include any gain on the sale of a personal residence that is excluded from gross income for regular income tax purposes. To the extent the gain is excluded from gross income for regular income tax purposes, it is not subject to the Net Investment Income Tax.

If an individual owes the net investment income tax, the individual must file Form 8960. Form 8960 Instructions provide details on how to figure the amount of investment income subject to the tax.

If an individual has too little withholding or fails to pay enough quarterly estimated taxes to also cover the Net Investment Income Tax, the individual may be subject to an estimated tax penalty.

The Net Investment Income Tax is separate from the new Additional Medicare Tax, which also went into effect on January 1, 2013. You may be subject to both taxes, but not on the same type of income. The 0.9 percent Additional Medicare Tax applies to individuals’ wages, compensation, and self-employment income over certain thresholds, but it does not apply to income items included in Net Investment Income.

For additional information on Net Investment Income Tax, see our questions and answers posted on IRS.gov.

Written by:  Dawn Fiala & Todd Miller, American Farmland Investments

Farmland as an investment has outperformed the S&P 500 for over the past 50 years, but with far less risk and volatility. It is relatively secure; not only in providing growth, but also in providing an annual payout greater than the S&P 500 or annual bank interest rates. Estimated annual land appreciation ranges from 5% – 13% and annual farmland rents average 3% – 7% of land value. Also, the macro-economic trends for this investment class are excellent. Farmland is expected to increase in demand, while the supply of quality US farmland is diminishing, each driving prices up over time. Because farmland is not correlated to other asset classes such as; housing, real estate, commodities (corn, wheat) or stocks, it also provides attractive diversification. To demonstrate its diversification, for example, during the recent recession, housing, real estate, and stocks all plummeted, but farmland grew in value during this time. With current and future market and population trends, farmland has been the top asset class for the last 20 years and will continue to outperform for many years to come.
Productive farmland is income producing and if paid for with cash, should never go to zero, lowering the over-all investment risk. Farmland investment companies rarely take on the risk of actually farming the land. The investment company will rent the land out to a farmer, again reducing the “farming-commodity” risk for the investor. The investment company is paid annual cash rents from the farmer which is then paid to the investors.

Combined World population and emerging Middle classes in China and India will continue to increase the demands for American Farmland driving farmland values up. As long as we need energy and food, farmland will continue to grow in value.

Farmland is a limited commodity, and the amount of good farmland is shrinking. There has been a loss of about 300 million American farmland acres in the last 66 years. Proven farmland continues to decrease  with continued urban and suburban development, erosion and drought. In fact, some of the once most productive farmland in America is now literally under housing developments, roads, and mall parking lots.

“Loss of  about  300 Million American Farmland Acres in 66 Years.”

In simple terms, the economic law of supply and demand is at work on American farmland.  The demand for good farmland is rising and the supply of good farmland is diminishing. When the demand for a product goes up at the same time as the supply of that same product is going down; values increase exponentially.

To learn more about investing in American Farmland, contact:

American Farmland Investments

480-346-4400

www.investfarmland.com

investor@farmlandinvestments.us

Dennis L. Taylor 12:01 a.m. PDT July 23, 2014

Wall Street is knocking on the door of Salinas Valley agriculture.

Investors from agriculture-focused hedge funds and investment trusts are touring farms in and around Salinas, including vineyards and strawberry fields.

Farmland investments are not new to the agricultural community. For nearly a decade investment managers have scoured the corners of the globe for cheap land as food prices have soared, positioning themselves to profit from the growing demand. Hedge funds now have $14 billion invested in farmland, according to the data provider Preqin.

An increasing number of sophisticated investors and bankers are combining crops and the soil they grow in into an asset class that ordinary investors can buy a piece of.

“It’s a great way to diversify a portfolio,” said Dawn Fiala, a partner and marketing chief for Mesa, Arizona-based private equity firm American Farmland Investments. “Farm investments don’t correlate to commodities or to equity investments like stocks.” Commodities include items such as soy beans and pork bellies.

Called asset classes, investment advisers suggest that an individual investment portfolio should be a mix – some stocks, some bonds, some mutual funds and perhaps some real estate. That way if Wall Street shenanigans cause another great recession as they did in 2008, the investor will be somewhat protected by not having all her eggs in one basket.

There’s a lot to be optimistic about in this new agriculture asset. It was one of the few investments that were not swamped by the 2008 tidal wave, and for a very good reason: people still have to eat, Fiala said.

Also, the amount of land that can be farmed is finite, while at the same time global population growth is stretching the planet’s resources even as humans are living longer. By 2030 the world’s population is expected to reach more than 8 billion, compared to the 6.5 billion in 2005.

“By 2030 we’ll be feeling it,” Fiala said.

With that growth comes corresponding demand for food, increasing the value of the land the food is raised or grown on. Fiala’s firm, American Farmland Investments, is predicting a return on investment of between 8 percent and 20 percent. The rolling average 10-year yield of the Standard & Poor’s Index is currently at 8.34 percent.

Increased yields are a key solution to matching demand with food supply. A Yale University study points out that in 1959 it took 11 acres to grow enough food to sustain a person for a year. Today, the same amount of food is being grown on 3 acres.

Here’s how the investment works at AFI, using a purchase in Louisiana that is now in the process of closing as an example.

AFI buys the land and then leases it back to the farmer. The farmer then uses that capital for expansion or equipment replacement or any other needed improvement. In seven years the farmer can buy back the farm from AFI.

On the investor side, individuals purchase units or half-units until the fund has reached 18 units, whereby it will be invested in more farmland. One-half unit goes for $27,750, Fiala said. A purchase in Oklahoma in 2008 has doubled in value, she added.

When asked if her firm is interested in Monterey County farmland, Fiala paused and measured her words.

“We are concerned about the drought,” she said. “We are going to where there’s water.”

But other investors are taking on the risk with the view the state’s water crisis will eventually be resolved. Hedge funds such as American Farmland Co., Farmland Partners and the Gladstone Land Corp. have been nosing around the Salinas and Pajaro valleys looking for potential investments, according to a New York Times article Tuesday.

Like any investment there is always risk. In the same Times article, Jeffrey Havsy, director of research for the National Council of Real Estate Investment Fiduciaries, said that as the trend of farm investment heats up, there is danger of a bubble forming – a green bubble.

“You can certainly overpay for farmland, and if crop prices declined for whatever reason – for example because of some type of natural disaster – there are all sorts of reasons why, all of a sudden, the income stream does not support the price you paid for a piece of land,” Havsy said.

Fiala returned to the facts surrounding the near-future supply and demand for food.

“How could that drop in value?” she said.

Senior Writer Dennis L. Taylor covers agriculture and economics for The Californian. Follow him on Twitter @taylor_salnews.