State Grants

Normally grants are tax-free if used for their intended purpose.  In your case it would be like the DNR paying you to plant trees for wildlife habitat. If they were not tax-free why bother with the paper work.

Iowa sends out a 1099Misc in this situation and it IS taxable.

This will depend upon the State Involved

  Taxwhat is correct.  Income from DNR grants is included in taxable income.  Taxpayer can then deduct the cost of trees or habitat planted to offset the income.  If taxpayer spends less than grant money received he will have net taxable income as he should.  Conversely they may spend more than grant received and have net loss from activity.

Taxiowa please clarify the deductibility part.  I have had many farmers receive grants from the US Dept of Ag, and I do deduct the expense of the conservation plan (up to 25% of gross farm income per year).  The one I dealt with this year was from the IA DNR.  It was given to clients that have no farm, no business, just live on a small acreage in the country.   They didn't feel they should be taxed on it so I sought guidance from the IA Dept of Revenue.  The first agent I spoke to was rather snippy, "Of course it's fully taxable the DNR gave them the money".  I tried a second time with a different agent and basically got the same answer, the DNR only gives grant money up to 50% of the cost of the windbreak....they now have a $3000 windbreak and it cost them 1500 out of pocket, so the 1500 grant is income to them.  I would love to call the clients and tell them I was wrong and will be amending their taxes if you can tell me how to legally do it. Thanks

In response to the information posted I will further clarify that this is in the state of Minn. and all the client got was a check with a warrant number.

   taxwhat - I never had a grant for a windbreak or for someone who did not have a business purpose for underlying grant.  Most of the farmer grants I have are for drainage ditch improvement or reconstructing larger waterways or timber reforesting which are directly related to their farming operations.  I have also had them for underground gasoline barrel cleanup.  Was there a business purpose for windbreak or simply a benefit for other parties such as snow fence.  Not sure where you would have a deduction for a windbreak unless you had long lane which always snowed in disrupting your farming operation.

Thanks Taxiowa, I knew the answer the minute I looked at the 1099 and they explained what it was for.  They are in the 25% tax bracket and were not at all happy about having to pay the tax on it, hence I offered to make the phone call.  Told them they would have to settle for increasing the basis of their property.  Now I need to check out if my small in-town acreage qualifies for this grant....I won't complain about paying the taxes on it if the DNR will pick up half the tab.....