I think we all know that the Farm Act has now been signed into law. What you may not know is there are some tax provisions associated with the Farm Act. Here are a few of the items I thought you might be interested in:
CONSERVATION RESERVE PROGRAM PAYMENTS
There has been controversy over the last several years of whether or not a farmer needed to pay social security tax on CRP payments. This is bouncing around between the IRS and the courts, and before the act, the IRS had ruled successfully that you had to pay Social Security tax on CRP payments, even if you were not a farmer or were retired. Now, this is all changed. The act provides that CRP payments received by retired or disabled individuals, who are getting Social Security, retirement, or disability payments are not subject to the self-employment tax income for self-employment tax purposes. This is effective for payments after 2007.
FARM LOSS CARRYBACKS
The new law tightens up farm losses if you are receiving large amounts of program payments. The law states that for any year a taxpayer other than a C corporation receives subsidies through CCC loans, countercyclical payments, or payments in lieu of that, the losses are limited to the greater of $300,000 or the total income from the farm for the prior five years. Any additional loss is carried forward to the next year.
SELF EMPLOYMENT TAX
One really good change to the law is that it modified the optional methods so that electing taxpayers will be eligible to secure four credits of social security benefit coverage for each tax year by increasing the indexing of the dollar thresholds. In the past, a farmer was only able to receive one quarter of coverage. Therefore, farmers with losses would eventually not be eligible for disability.
There are other tax provisions to the act. I will list them, and if you are interested in them please let me know, and I would be glad to get you more information. I do not include the detail in the blog due to fact that this would only affect a minority of farmers.
- Qualified conservation donations
- Endangered species recovery expense deduction
- Depreciation of race horses
- Exchange of mutual ditch, reservoir, or irrigation company stock
- Timber investments in REIP'S
- CCC loan transaction reporting
- Corporate estimate tax of farmers with over $1 billion in assets
- Kansas Disaster Area Relief
- Credit for production of cellulose biofuel
- Alcohol credit
Again, if you have any questions on these, please feel free to contact me.
Larry Kopsa CPA
