Hello northeast Ohio!
Each fall, Ohio State University Extension offers a series of two-day tax workshops across Ohio for income tax preparers.
I have had the pleasure to serve as part of the teaching team at these workshops. As we have been teaching, we have been asked a variety of farm-related tax questions, so today I would like to share a few of these with you.
From a farmer in Pickaway
County:
Q. Due to the drought, I received a crop insurance check for production losses to my corn and soybean crops. I usually store the crop and sell it after the new year. Can I wait to claim the insurance check as income until next year?
A. Under IRS section 451(f), cash basis farmers can elect to defer crop insurance proceeds received to the tax year following the year of the destruction or damage. This deferral protects farmers whose regular practice would have been to sell the crop in the following tax year.
The election is optional, and farmers should consider the impact of the deferral on income in the subsequent year.
It should be noted for revenue-based insurance policies that only the amount of the proceeds received as a result of yield loss can be deferred. Due to the complexities of this deferral, it is very important to consult with your tax professional about your situation.
From a farmer in Washington County:
Q. Due to the drought, I received money from the Farm Service Agency for grazing losses through the livestock forage disaster program (LFP) and for hauling water for my cattle through the emergency assistance for livestock, honeybees and farm-raised fish program (ELAP). Is this money taxable?
A. The answer is yes. Payments received from both LFP and ELAP are taxable in the year the payment is received. A 1099-G will be issued to you by the Farm Service Agency.
From a farmer in Ashtabula County:
Q. I plan on buying a new round baler before the end of the year. I am trying to decide how to depreciate it. What advice can you offer?
A. Farm machinery purchases are expensed on a depreciation schedule, typically over 5 or 7 years. However, farmers can elect to speed up the depreciation through two accelerated methods, including section 179 and bonus depreciation.
For 2024, the maximum amount you can elect to deduct for most section 179 property is $1.22 million. This limit is reduced by the amount by which the cost of the property exceeds $3.05 million.
Remember this deduction is limited to the taxable income from your business and the equipment must be on-site and fully ready for use before it can be depreciated. In addition to section 179 depreciation, remember to ask your accountant about the use of bonus depreciation which may allow for a 60% deduction. It should be noted that bonus depreciation is being phased out and will be lowered to 40% in 2025.
From a farmer in Wayne County:
Q. We heard at a workshop that we need to update our farm estate plan due to pending changes. What are the new gift and estate tax limitations?
A. The Internal Revenue Service recently released its annual inflation adjustments to the annual gift tax exclusion as well as lifetime exclusion for federal estate and gift tax. For annual giving in 2025, individuals can make gifts up to $19,000 per gift recipient or up to $38,000 per recipient for married couples without using any of their lifetime estate and gift tax exclusion.
For individuals who pass away in 2025, the federal estate tax exclusion will be $13.99 million per person decreased by lifetime taxable gifts. A reminder that the historically high federal estate tax exclusion is scheduled to sunset at the end of 2025. This means the $13.99 million exclusion per person will be reduced to approximately $7 million. It would be wise for all of us to review our estate plans given this reduction.
Workshops. OSU Extension holds workshops to help you develop your farm transition and estate plans and more details can be found at go.osu.edu/farmsuccession.
From a farmer in Adams County:
Q. How can I learn more about farm taxes?
A. First, Publication 225, The 2024 Farmers Tax Guide, is the premier source of information on farm taxes and it can accessed at tinyurl.com/4s7bj8s3.
I would also recommend that you check out the Rural Tax Education web site at ruraltax.org which has excellent farm tax resources that are both current and easy to understand.
Webinar. OSU Extension will also host a landowner and farm tax update on the Farm Office Live webinar from 10 a.m. to noon on Dec. 6. The webinar is free and registration can be made at farmoffice.osu.edu/farmofficelive.
In closing, I hope each of you have a wonderful Thanksgiving season and I would like to share a quote from Albert Einstein who said, “The hardest thing to understand in the world is the income tax.” Have a good and safe day!
