Form 4594 - Michigan Farmland Preservation Tax Credit

Instructions for Form 4594

4594, Page 3

Michigan Farmland Preservation Tax Credit

PA 426 of 2016 is retroactive and effective for tax years

Purpose

beginning after December 31, 2011. Normal statute of

The Farmland Preservation Tax Credit gives a share of the

limitations restrictions apply.

property tax paid on farmland back to farmland owners.

Example: Joe is the grantor of a revocable grantor trust.

Farmland owners qualify for credit by agreeing to keep the

Farmland subject to a development rights agreement under the

land as farmland and not develop it for another use.

NREPA is held in the trust. Because for income tax purposes

NOTE: This form must be filed with the Michigan Business

a grantor trust is disregarded, Joe reports the attributes of

Tax Annual Return (Form 4567). Unlike some earlier years,

the grantor trust on his individual income tax (IIT) return.

Form 4594 cannot be filed as a stand-alone document.

Therefore, Joe claims the Farmland Preservation Tax Credit on

his Michigan IIT return for year 2013. In 2014, Joe dies and the

NOTE: Beginning January 1, 2012, only those taxpayers with

grantor trust becomes irrevocable. A final, part-year IIT return

a certificated credit, which is awarded but not yet fully claimed

is filed for Joe, which claims a proportionate share of the credit.

or utilized, may elect to be MBT taxpayers. If a taxpayer files

The trust may be entitled to the rest of 2014’s credit. Because

an MBT return and claims a certificated credit, the taxpayer

the trust cannot claim the credit under the IIT, the credit must

makes the election to file and pay under the MBT until the

be claimed under the MBT. Before PA 426 was enacted, the

certificated credit and any carryforward of that credit are

trust would not be eligible to make a valid MBT election and

exhausted. This credit must be claimed beginning with the

could no longer claim the credit. The trust may now elect to

taxpayer’s first tax year ending after December 31, 2011, in

file and pay the MBT and claim the credit for tax year 2014.

order for the taxpayer to remain taxable under the MBT and

The 2014-2016 MBT returns can be filed in 2017 (or later, if not

claim the credit.

closed to the statute of limitations).

What’s New

Requirements

Farmland Preservation Tax Credits are granted in connection

To qualify, the following requirements must be met:

with farmland development rights agreements under the

• Taxpayer must own farmland, and

Natural

Resources

and

Environmental

Protection

Act

(NREPA), and are certificated credits when claimable against

• Taxpayer must have entered into a Farmland Development

the MBT. Public Act 426 of 2016 amended the Michigan

Rights Agreement (FDRA) with the Michigan Department of

Business Tax (MBT) Act to allow some trusts (such as grantor

Agriculture and Rural Development (MDARD).

trusts) and estates with a certificated Farmland Preservation

If agreements were entered into on or after January 1, 1978, the

Tax Credit to elect to file a return and pay the tax under the

gross receipts qualifications in Part 1 must be met.

MBT in order to claim the credit, under certain circumstances.

Farmland Development Rights Agreement

Specifically, if all the following conditions are met, a trust or

estate may make the MBT election and claim the credit in the

Through an FDRA, a taxpayer may receive property tax relief in

first tax year in which that certificated credit could be claimed

return for a pledge not to change the use of the taxpayer’s lands.

under the MBT, even if that tax year is later than the first tax

NOTE: The FDRA restricts development of land. Before

year beginning after December 31, 2011:

making any changes to property covered under this agreement

• A Farmland Preservation Tax Credit has been claimed

or to its ownership, consult the MDARD. Some changes may

in a previous tax year under Part 1 of the Income Tax Act

make property ineligible for credit.

(individual income tax, IIT);

Filing the Correct Form

• That farmland preservation tax credit is no longer eligible

to be claimed against the IIT as a result of the death occurring

The following should file using Form 4594:

after December 31, 2011, of the individual farmland owner or

• Estates, include property taxes from the date of death and

the individual considered the farmland owner under NREPA;

farm income required to be reported on the entity’s U.S. Form

and,

1041.

• The ownership of the farmland property upon which that

• Corporations other than S Corporations.

credit was based is transferred into (or reverts to) an estate or

• S Corporations that had an FDRA before January 1, 1989,

trust.

and in 1991 elected to file under the Single Business Tax (SBT)

The taxpayer must continue to file an MBT return and pay the

Act on the Farmland Preservation Tax Credit (Form C-8022).

tax for each subsequent tax year until that certificated credit

• Trusts, except as noted below.

is complete and used up, or the taxpayer no longer owns the

The following should file using MI-1040CR-5:

property subject to the agreement, whichever occurs first.

When the earlier event occurs, the taxpayer will no longer be

• Individuals who own a farm independently.

eligible to file under the MBT and will no longer be able to

• Representatives

deceased

individuals

who

were

claim any other remaining certificated credits.

unmarried at time of death. Include property taxes and income

Form 4594 - Michigan Farmland Preservation Tax Credit - 2016 Page 3

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