Agriculture and Tax Reform

Issue Overview

Running a farm or ranch business is challenging under the best of circumstances. Agriculture operates in a world of uncertainty—from unpredictable markets to fluctuating farm business costs, to weather disasters and disease outbreaks. Farmers and ranchers need a tax code that provides certainty and recognizes their unique financial challenges as they work to provide a secure food supply for our nation.

While important strides, such as the 2017 passage of the Tax Cut and Jobs Act, have been made in recent years, Farm Bureau supports a number of changes to help provide stability and security for America's farms and ranches.

AFBF Policy

While important strides, such as the 2017 passage of the Tax Cut and Jobs Act, have been made in recent years, Farm Bureau supports a number of changes to help provide stability and security for America's farms and ranches.

• Estate taxes should be permanently eliminated. At the very least, Farm Bureau believes that the $11 million per person/$22 million per couple indexed estate tax exemption that was passed as part of the Tax Cuts and Jobs Act should be made permanent and that unlimited stepped-up basis should continue.
• The limitation on the amount that property values can be reduced under Special Use Valuation Section 2032A should be removed. Timber harvesting or the sale of a conservation easement should not trigger a recapture of estate taxes.
• The capital gains tax rate should be reduced and assets should be indexed for inflation.
• Capital gains should not be collected at death and there should be an exclusion for agricultural land that remains in production, for transfers of farm business assets between family members, for farmland preservation easements and development rights, and for land taken by eminent domain.

Background

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.”

Permanent Provisions

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)

Temporary Provisions

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.