Passage of the Tax Cuts and Jobs Act in 2017 benefits most farm and ranch businesses and has allowed them to build their operations and stimulate the agricultural economy. Important provisions include reduced tax rates, the new business income deduction, provisions to allow the matching of income and expenses, immediate cost recovery and an increase in the estate tax exemption. USDA Economic Research Service documented the expected benefits of the tax reform in its June 2018 publication “Estimated Effects of the Tax Cuts and Jobs Act on Farms and Farm Households.”
The Tax Cuts and Jobs Act contains many new, permanent provisions that help agriculture.
- Sect. 179 Small Business Expensing Increased to $1 million
- Indefinite Carry Forward of Deductions Indexed for Inflation
- Depreciation for Farm Equipment Shortened from 7 to 5 Years.
- New Flat 21 percent Corporate Tax Rate
- Repeal of the Corporate Alternative Minimum Tax (AMT)
Many of the pass-through business provisions in the Tax Cuts and Jobs Act are temporary and should be made permanent. More the 98 percent of farm and ranches operate as “pass-through businesses:” sole proprietorships, partnerships and Sub S corporations. Failure to extend these important provisions will result in a tax increase for farmers and ranchers and leave them without ways to deal with the cyclical and unpredictable nature of their businesses.
- Reduced Pass-Through Tax Rates and Expanded Brackets: If not extended, higher tax rates will increase taxes on the majority of farm and ranch businesses.
- New 20 percent Business Income Deduction (phase-out starts when taxable income exceeds $315,000/joint): Allowing the business income deduction to expire would expand the tax base of pass-through businesses, erasing much of the benefit of tax reform legislation.
- Unlimited Bonus Depreciation (Expensing): If not continued, farmers and ranchers will be unable to offset income with deductions for their business expenses. This is especially critical because like-kind exchanges for equipment and livestock are repealed.
- Doubled Estate Tax Exemption to $11 million person/$22 million couple: If the exemption is allowed to revert back more farms and ranches will be subject to estate taxes. And, as long as the exemption level is temporary money must be spent on estate tax planning rather than on growing farm and ranch businesses.
- Increased Alternative Minimum Tax Threshold for Individuals: Rollback of the higher AMT threshold will cancel out important deductions and credits put in place by tax reform.