• Family Farm Exemption For Realty Transfer Tax
  • February 5, 2013 | Author: Angela McGowan
  • Law Firm: Rhoads & Sinon LLP - Harrisburg Office
  • Individuals engaged in the business of agriculture now have a new incentive to transfer their real estate into an entity to insulate themselves from personal liability. Additionally, family farm businesses now have an opportunity to reorganize and transfer real estate without incurring realty transfer tax.

    Pennsylvania law was recently amended to provide that “a transfer of real estate devoted to the business of agriculture to a family farm business by a member of the same family, which directly owns at least seventy-five percent of the interests in the business or by a family farm business, which family directly owns at least seventy-five percent of each class of stock thereof or interest in that family farm business” is excluded from the imposition of realty transfer tax.  Pennsylvania law generally imposes a 2% realty transfer tax based on the actual purchase price or computed value on transfers of real estate: 1% at the state level and 1% at the local level.[1]  This new exemption may amount to a substantial savings.

    A “family farm business” is a corporation or association (which includes general, limited and limited liability partnerships) of which at least 75% of its assets are devoted to the business of agriculture and at least 75% of the interests in the business are continuously owned by members of the same family.  The business of agriculture shall include the leasing to members of the same family of property which is directly and principally used for agricultural purposes.  Agriculture is defined by what it is not. The business of agriculture shall not be deemed to include:

    (1) recreational activities such as, but not limited to, hunting,
    fishing, camping, skiing, show competition or racing;

    (2) the raising, breeding or training of game animals or game birds,
    fish, cats, dogs, or pets or animals intended for use in sporting or
    recreational activities;

    (3) fur farming;

    (4) stockyard and slaughterhouse operations; or

    (5) manufacturing or processing operations of any kind.

    Therefore, in order to be excluded, the following elements must be met:

    (A)  Transfer of real estate devoted to agriculture, as that term is
    above-defined;

    (B) to a family farm business, as above defined;

    (C) by a member of the same family or by a family farm business
    which family directly owns at least 75% of each class of stock or
    interests in such business; and

    (D) which same family owns at least 75% of the interests in the
    business.

    To many individuals engaged in the business of agriculture who own large agricultural properties, this new exemption offers a unique opportunity to reorganize your agricultural business.  If you interested in transferring your agricultural properties to an existing family farm business or are interesting in forming a family farm business to hold agricultural real estate or are just generally interested in learning more,  please contact us so that we can guide you through the process.



    [1] Local realty transfer taxes vary throughout the state and may be higher than 1% depending on the location of your property.