By Lori EhdeLand values in Rock County are reaching all-time highs, with land sales recorded at $5,000 per acre in some places.According to the Rock County Land Records Office, tillable ag land has been steadily increasing in value over the past several years.For example, the average acre of tillable ground in Rock County was valued at $1,627 per acre in 2001.That rose by 38.5 percent in the past five years to $2,254 per acre in 2005.The highest price paid for any piece of ag ground in Rock County in 2002 was $2,830 per acre, which was considered exceptional at the time. That was the year prices first broke the $2,500 per acre threshold.Now, the top dollar is nearly 53 percent higher with last year’s priciest parcel going for $4,325 per acre in November. That same year, land just a few miles over the border into Iowa sold for $5,500 per acre.Rock County Land Records Director Tom Houselog wouldn’t make predictions on the local land value trend, but he said the figures are remarkable."It appears to me we’re still on the way up," Houselog said.Typically, the most expensive ground is in the fertile areas of Hills, Steen and Beaver Creek, but as prices climb there, buyers are willing to pay higher prices in other parts of the county as well."They’re paying way more than it’s valued at," Houselog said.He said fewer land sale opportunities are forcing buyers to consider marginal land at higher prices, and paying more than the land is worth still feels like a good deal, comparatively.Higher land prices = higher assessed values, … but not higher taxesRegardless, high land prices are affecting assessed market values all over the county, Houselog said, because assessors look at land sales in the neighborhood to estimate the value of particular parcels.But he said land prices and increasing market value haven’t affected property taxes on ag land."People assume that’s the case," he said, "but when you look at most parcels, we’ve actually seen a decrease in taxes paid over the past years, while that same period has seen a steady market value increase." That’s because the state’s formula for taxing ag property is set up with certain tax credits and exemptions that allow for reasonable amounts on property tax statements."In some places, we’ve seen land values increase by 50 percent over a period of five years, and in that same time, taxes have stayed the same or gone down," Houselog said.Tax law playing a role in high land pricesPart of the reason for high land prices is the 1031 Exchange Tax, according to local tax professionals."It’s definitely having an effect," said Damon Eisma, of Eisma Law Office.The federal tax law allows income tax from land sales to be deferred if it’s used to purchase other land."What we’re seeing is higher appreciation on land in other parts of the country, let’s say on a piece of bare ground near an area that’s being developed," Eisma said. "If the seller turns around and invests that money into other land, he or she can defer taxes on the income."He said the 1031 Exchange is prompting some land to sell for as much as twice its assessed value."They need to get that cash into land or they face having to pay that income tax," Eisma said. "What we’re seeing is that they’re willing to pay $4,000 or more for a piece of land that’s worth only $2,000, just to get the cash invested."Land too pricey for young farmers getting startedLand values can have a major effect on the local economy, particularly if there’s a drastic drop in values.The farm crisis of the mid-1980s is a classic example. Many farmers had borrowed against the value of their land to float their operations.When land values dropped and interest rates shot up, many were forced to sell or go out of business.Cliff Boom, senior vice president at First Farmers and Merchants Bank, Luverne, has 30 years of ag lending experience."Personally, I don’t think land values are going to plummet like they did in the mid-1980’s," he said when asked about land value trends. "People purchasing land now have more cash available, or equity in other assets to make a larger down payment to help cash flow the land purchase."Land sale prices have been steadily increasing for the past 10 years, and Boom said he expects values to plateau in the next few years or maybe decline somewhat."It’s kind of topped off," he said about local sales. "You’ve got some exceptional pieces of land in the Hills area, but it’s my gut feeling that it’s going to level off."He said one implication of high-priced land is that younger farmers are finding it harder to get a foothold in the business, and larger farmers have more resources available to afford more land or higher land rents."The farms we have are getting bigger and bigger," Boom said. He said land isn’t the only thing getting expensive in farming."All the input costs are going up," Boom said. "Seed, fuel, fertilizer, chemicals, cash rent – it’s all expensive, and it makes it a lot more difficult to cash flow. … It’s preventing young people from getting started in farming."Young farmers often start out renting, and rental rates are increasing with the value of land, making it even more difficult to gain a foothold.Boom said he’s working with younger farmers through the Minnesota Rural Finance Authority, for example."We’re looking at creative financing," Boom said. "But it also helps to have nice parents who are willing to co-sign on a loan."