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Tax Laws for Farmers & Ranchers

Tax Laws for Farmers & Ranchers


The IRS has enforced new laws for taxpayers running a ranch or farm business. Although business can be overwhelming, the new laws have complicated it. Agriculture is a broad and uncertain term. Farmers need to predict market charts, farms, business costs, weather issues, and the outbreak of diseases. 

However, ranchers and farmers must add the new tax code to provide certainty and battle financial issues as they work to supply agricultural products to the world. The government has enacted many strides, like the (TCJA) Tax Cut and Jobs Act of 2017. Over the years, other laws have been passed to fight the challenges and help make life easier and give adequate security for America’s ranches and farms.

 

AFBF Policy

Here are some securities provided by the Farm Bureau to support farmers in overcoming challenges.

  • The law eliminates estate tax permanently. The office suggested eliminating the $11 million for each person or $22 million for couple-indexed estate tax implemented by the TCJA. However, the law allows an unlimited stepped-up basis.

  • The law also states that the limitation on whatever amount that can be brought down from property values under Special Use Valuation Section 2032A should be eliminated. In addition, the law also abolished estate taxes on timber harvest or sales of a conservation easement. 

  • It also reduces the tax for capital gains and allows assets to be valued according to inflation.

  • The law also condemns the collection of capital gains upon death. The law should not affect all agricultural lands used in production, the transfer of various farm business assets between members of the family, land seized by eminent domain, and farmland preservation easement and rights of developments. 


Businesses that Face Exemption

However, you must meet certain requirements to be exempted by law. Here are some:

There are farming or ranching programs that qualify workers. This includes:

  • Livestock, poultry, or fish farming 

  • Growing crops

  • Dairy production

  • Breeding animals for fur

  • Fruit farm, truck farm, or orchard farming

  • Ranch or range farming

  • Your primary business must be farming and ranching. Many farmers pass this law by dedicating most of their farming or ranching operations on approved qualifying programs. For example, you can decide to spend 50% of your business time on farm and ranch products and list them for sale.

  • Produce the goods you sell

  • Put the goods on the market to sell. You can sell them or hire a retailer to help sell them

  • You must include your business losses or gains on your income tax reports.

OR

  • Participate as a custom farmer or cowboy. You can use your business to qualify for farming and ranching by working in someone’s farm or ranch and receiving earnings or compensation for your services. For example:

    • Harvesting

    • Spraying fields

    • Planting

    • Branding livestock

    • Shearing sheep

    • Breeding livestock

  • However, the law excludes the following:

    • Renovating real property

    • Clearing land

However, you must not have goods produced from the farm to receive the benefits of custom work, but the goods must be put for sale.


The part of Separately operated business 

You can also qualify if you own a business that operates separately. For example, you may have a business branch, division, or cost center. However, the law mandates you to keep separate records for such services to qualify your separate business under this segment. 

Such record-keeping includes income, wages, expenses, and assets related to the business. In addition, your employees must be ready to operate the business separately. 

Businesses that don't qualify for the exemption

However, the law only covers farming and ranching activities that dedicate 50% of their time handling business to qualifying farming and ranching activities to make a profit. Here are businesses that are exempted under the law:

  • Hobby farms or ranches

  • Farming or ranching to harvest goods for personal use

  • Businesses that only show or racehorses

  • Businesses that only breed horses to race or show


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Pat Raskob, Emeritus
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