New Tax Laws Pretty Good for Farmers

Teresa Olson
By Teresa Olson April 17, 2018 09:43


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The Tax Cut and Jobs Act in general appears to be pretty good for farmers, and I’ve recapped some highlights for your information:

  • Individual income tax rates are overall, lower for the next seven years (they’re scheduled to sunset after 2025) and should mean tax savings at most levels of taxable income.
  • The standard deduction has nearly doubled, and so many taxpayers who itemized deductions may default to this method of deduction in 2018.  When itemizing, farmers and ranchers  who pay real estate tax on land used for crops and pasture will still be able to deduct 100% of those expenses, compared to a cap of $10,000 for everyone else.
  • Personal exemptions for taxpayers, their spouses and children have been suspended, but this lost deduction may be offset to some extent by the increased standard deduction.
  • Capital gains rates have generally been retained, and this is good news for farmers who plan to sell land or other appreciating assets and raised breeding livestock.
  • State and local tax deductions (SALT) are limited to $10,000 annually.
  • Starting in 2018, Section 179 states that farmers will be allowed to immediately write off capital purchases such as breeding livestock, farm equipment and single-purpose structures such as milking parlors up to $1 million.  Phase out on this expensing kicks in when a farm reaches $2.5 million in purchases.  Farmers will be able to write off 100% of qualified property purchased after 9/27/17 and through 2022 when a phase-down occurs.  Note that many states don’t conform exactly to the federal bonus and 179 depreciation provisions.
  • Machinery and equipment other than any grain bin, fence or other land improvement structure can be depreciated over five years as long as the original use of the asset begins with the taxpayer.
  • Like-kind exchanges are limited to real property, i.e., farmers can still swap land for other land tax free.  Equipment trade-ins will no longer be a tax-free event.
  • There is now a flat 21% corporate tax rate, so those farmers operating as a C-corp (and typically falling within the 15% tax bracket) may want to consider switching to an S-corporation to avoid the 6% increase in tax.
  • Farmers with average gross receipts for more than three years of under $25 million can still use the cash method, but they won’t be able to deduct inventory until it’s sold under section 471.
  • Net operating losses are limited to 80% of taxable income, and farmers are permitted a two-year NOL carryback.
  • The federal estate tax exemption rates double to $11.2 million per individual and double that for married couples in 2018.

This has been the largest overhaul to the U.S. tax code in 30 years, so it might be wise if you made an appointment with your tax accountant to review the specifics of your operation.  It could make your year-end preparation a lot easier.

-Terry Olson, Titan Outlet Store Team



Teresa Olson
By Teresa Olson April 17, 2018 09:43
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  1. knute April 19, 16:11

    Thank You for the article on new Tax Laws, and Thanks to President Donald Trump. It appears to be a Great Improvement for Agriculture.

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