New Homestead Act and Rural Businesses
The bill provides for tax
incentives to encourage business activity in counties
that have lost 10 percent or more of their population
To help renew the promise of the original Homestead Act
and to reinvigorate rural communities, several members
of Congress have introduced the New Homestead Act of
In the U.S. Senate, S. 602 was introduced by Senators
Chuck Hagel (Nebraska) and Byron Dorgan (North Dakota),
and co-sponsored by Senators from Louisiana, Montana,
Minnesota, South Dakota, Arkansas, Kansas, Illinois,
Iowa, Georgia, and West Virginia. In the U.S. House of
Representatives, H.R. 2194 was introduced by Reps. Tom
Osborne (Nebraska) and Earl Pomeroy (North Dakota).
The New Homestead Act offers a variety of incentives and
tax credits for those who locate or begin a business in
non-metropolitan counties that have lost at least 10
percent of their population since 1980.
The New Homestead Act contains specific provisions
targeted at small business development in qualifying
counties. Briefly, those provisions are:
○ Establishment of Individual Homestead Accounts,
which are essentially savings accounts where an
individual may contribute up to $2,500 annually for up
to five years; these individual contributions would be
matched by the federal government in an amount equal to
25 to 100 percent of the individual contributions
(depending on the accountholder’s income).
Tax-free and penalty-free distributions may be made from
the account after five years for costs related to
developing a business, including capital, plant,
equipment, and inventory costs.
○ Offering Microenterprise Tax Credits to aid
small business owners (those with five or fewer
employees) in qualifying counties. Under the New
Homestead Act, each state with qualifying counties
receives $1 million per qualifying county in “Rural
Investment Tax Credits” (credits against federal income
taxes) as incentives for businesses to expand or move to
qualifying rural counties.
States may choose to allocate up to 20 percent of their
total Rural Investment Tax Credit amount for
microenterprise credits. Businesses can use these
credits to reduce their federal taxes by 30 percent of
any new business investment with a limit of $25,000.
So, for example, 63 counties in Nebraska would qualify
for provisions under the New Homestead Act, allowing for
$63 million in Rural Investment Tax Credits to the state
and the potential for up to $12.6 million in
microenterprise tax credits.
The New Homestead Act holds great potential for
America’s rural communities and small businesses in
them, but it is not law yet. We will continue to monitor
its progress and keep you informed.