Tax Reform: What You Need to Know

The Tax Cut and Jobs Act is the most sweeping piece of tax reform legislation in the last three decades. Its effects reach into a wide range of industries, including farm and ranch businesses. In a recent article for Successful Farming, author Julie Spiegel offers an overview of the legislation, highlighting various items and their impacts on producers.

Generally lower individual income tax rates.

Impact: Tax savings at most levels of income.

Nearly doubled standard deduction.

Impact: Fewer filers itemizing their deductions.

Elimination of personal exemptions.

Impact: Lowers the total deduction of many taxpayers significantly (but is offset, at least in part, by the increased standard deduction).

More favorable depreciation rules.

Impact: Tax savings for those who purchase or build equipment and sheds.

Elimination of like-kind exchanges for personal property.

Impact: Equipment and livestock trades now taxable; taxpayer must report gain or loss.

Corporate tax rate lowered to flat 21%.

Impact: Tax savings for many C-corporation farmers.

Net operating loss carrybacks for farmers reduced from five to two years but can now be carried forward indefinitely.

Impact: Will require tax-planning adjustments.

Addition of pass-through deduction.

Impact: Reduction in taxable income for partnerships and S-corporations.

Capital gains rates and corresponding tax breakpoints retained.

Impact: Beneficial for farmers looking to sell appreciating assets.

Like-kind exchanges for real property retained.

Impact: 1031 exchange still tax deferred.

Be sure to consult your De Boer, Baumann & Company business advisor for more details on the tax overhaul and its impact on your particular situation. To read Spiegel’s article in full, visit Successful Farming.