It’s tax season again! If you are like me, you have spent hours gathering the paperwork necessary to file both your personal and farm taxes.
With the complexities of farm taxation and the constant changes to tax laws, consulting a tax professional experienced in agricultural taxes is a smart choice.
What many may not know is that Ohio State University Extension plays a vital role in educating tax professionals across the state through the OSU Income Tax School program. We also monitor federal and state tax changes to help farmers understand how these adjustments might impact their operations.
This year is especially important due to the impending expiration of several provisions from the 2017 Tax Cuts and Jobs Act by the end of 2025.
The TCJA was the most significant tax reform since the Reagan administration, with changes such as lower tax rates for individuals and corporations, higher standard deductions, expanded child tax credits, elimination of personal exemptions, caps on deductions for state and local taxes,and new tax benefits for business owners, including a pass-through business deduction.
Following is a quick look at some of the key TCJA provisions set to expire and their potential implications for farm businesses:
Marginal tax rates
The TCJA lowered tax rates across most income brackets and increased the standard deduction, while expanding child tax credits. However, many of these provisions will sunset at the end of 2025, reverting to previous levels, which could increase tax liabilities for many farm households.
Section 199A deduction. The TCJA introduced the 20% pass-through deduction (Section 199A) for farmers operating as sole proprietors, partnerships or S-corporations. This deduction allows farmers to reduce taxable income by deducting up to 20% of their qualified business income. While this provision was intended to equalize the tax treatment of pass-through businesses and C-corporations, it will sunset at the end of this year.
Bonus depreciation
The TCJA temporarily increased the bonus depreciation deduction to 100% for new and used business property purchased between Sept. 27, 2017, and Dec. 31, 2022. Starting in 2023, this deduction has been gradually reduced by 20% each year, with the rate dropping to 40% in 2025 and 20% in 2026. Bonus depreciation will expire entirely Jan.1, 2027, impacting how farm businesses deduct property purchases.
Estate tax limitations
The TCJA temporarily doubled federal estate and gift tax exemptions, providing significant relief for farmers. The exemption increased to $11.18 million per individual and $22.36 million for married couples in 2018. In 2025, the exemption stands at $13.99 million for individuals and $27.98 million for married couples. However, these exemptions are set to revert to pre-TCJA levels adjusted for inflation. This translates to a new exemption level around $7 million per person in 2026. This could lead to substantial estate tax liabilities for farmers with large land holdings or assets.
Potential impacts
The potential impact of changes to the 2017 TCJA on farm businesses is significant. The USDA Economic Research Service estimates that expiring tax provisions could increase average tax liabilities for farm households by $2,263, or 11.5%. The elimination of the Section 199A QBI deduction would result in a $2,464 tax liability increase (on average) for 45.3% of farm households earning positive farm income. Additionally, the expiration of higher estate tax exemptions could cause the share of taxable farm estates to increase to 1%, leading to a projected $1.2 billion rise in federal estate taxes.
Looking forward
Given the significant tax changes ahead, it’s essential to work with tax professionals and estate planners who specialize in agriculture.The OSU Extension Farm Office Team is here to support Ohio’s producers by providing up-to-date information on legal, tax, and farm management issues.
We host a monthly Farm Office Live webinar to provide insight on these topics. Upcoming webinars will be held Feb. 21, March 28 and April 25 from 10-11:30 a.m. To learn more and register, visit farmoffice.osu.edu/farmofficelive. Have a good and safe day!
