What to do with land
Buying Land to Farm
Farming for income puts you under a different set of rules than homesteading or a hobby operation -- tax treatment, zoning exemptions, and financing all key off whether the operation is run as a business.
What Counts as a "Farm" Depends on Who's Asking
The USDA's Census of Agriculture defines a farm as any place that produced and sold, or normally would have sold, $1,000 or more of agricultural products in the census year -- a deliberately low bar that has been in place since USDA took over the census. That federal statistical definition is separate from your state's agricultural tax-exemption definition and separate again from the IRS's test for whether your farm is a business rather than a hobby (below). A parcel can meet one of these definitions and not the others, so don't assume "USDA counts it as a farm" automatically gets you a local tax break.
Agricultural Zoning and Tax Exemptions Vary Sharply by State
Most states offer some form of reduced property-tax assessment or zoning exemption for land in active agricultural use, but the qualifying acreage and income thresholds differ a great deal: Ohio requires at least ten acres, or a smaller parcel producing $2,500 or more in average annual agricultural income; Tennessee requires a minimum of 15 acres actively in agricultural use; and some agricultural preservation zoning programs set minimum lots of 40 acres or more for the strongest tax treatment. None of this is standardized nationally -- the acreage that makes a parcel viable for an agricultural exemption in one state may fall well short in another, so check your specific state's Department of Revenue or extension-office guidance before assuming a given acreage qualifies.
Hobby Farm vs. Business: The IRS's Nine-Factor Test
If you plan to deduct farm losses against other income, the IRS applies a nine-factor facts-and-circumstances test (under the hobby-loss rules of Internal Revenue Code Section 183) to determine whether your farm is operated with a genuine profit motive: how businesslike your recordkeeping is, whether you or an advisor have relevant expertise, the time and effort you put in, your history of income or losses, and several related factors. No single factor decides it, but a pattern of years without profit and minimal businesslike operation is what typically triggers hobby-loss reclassification, which caps deductible expenses at the activity's income rather than allowing a loss to offset other income. This is a materially different tax posture than a homestead, which usually isn't attempting to generate farm income at all.
Right-to-Farm Protection Applies More Cleanly Here
Because right-to-farm statutes in most states were written to protect commercial agricultural operations specifically, a working farm selling into the market is generally on firmer ground relying on that protection against a nuisance complaint than a small hobby homestead is, per the National Agricultural Law Center's overview of these laws -- though the laws still only protect generally accepted agricultural practices conducted in a non-negligent way, and the details of what qualifies vary by state.
Financing a Working Farm
USDA's Farm Service Agency offers Direct Farm Ownership Loans specifically for buying and improving farmland, with a Down Payment Program for beginning farmers requiring as little as 5% down, though a size limit applies: an applicant generally can't already own a farm larger than 30% of the average farm size in the county. Beginning-farmer set-asides reserve a majority of FSA's direct ownership loan funds specifically for new entrants each year. This is a different financing landscape than raw land bought for a homestead or recreational use -- our national guides to land financing and raw land loans cover the general land-purchase process, while FSA programs are specific to agricultural production.
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- Census of Agriculture Frequently Asked Questions — USDA National Agricultural Statistics Service (accessed 2026-09)
- Agricultural Exemption from Zoning (Ohio) — Ohio State University Extension, Farm Office (accessed 2026-09)
- Understanding the IRS's Perspective on Hobby Farms — Ohio State University Extension, Farm Office (accessed 2026-09)
- Overview of Right-to-Farm Laws — National Agricultural Law Center (accessed 2026-09)
- Farm Ownership Loans — USDA Farm Service Agency (accessed 2026-09)
Last reviewed 2026-09