This morning, Congress passed the Republicans' sweeping tax reform package, which will head to President Trump for his signature by Christmas.
The agricultural community, for the most part, fares well in the bill. Here's how:
In line with a corporate tax rate deduction to 21 percent, pass-through businesses (sole proprietorships, partnerships, LLCs and S corporations) will also be allowed to claim a new deduction of 20 percent for the first $315,000 of qualified business income for couples, half that for single taxpayers. According to the USDA, pass-through entities account for 85 percent of U.S. agricultural production.
The bill does away with the broad deduction, Section 199, used by cooperatives in the manufacturing of agricultural products. However, due to strong outreach by the ag community, a provision was included that allows farmers to claim a 20 percent deduction on payments from co-ops. Co-ops can also claim that deduction on gross income minus payments to members. DBA's sister organization, Edge Dairy Farmer Cooperative, did support lobbying efforts for the deduction even though Section 199 did not apply to membership through Edge, but does affect those members belonging to other co-ops for inputs as well as the many DBA members belonging to co-ops.
Congress doubled the estate tax exemption from $5.49 million to $11 million for individuals. However, the increased threshold sunsets at the end of 2025.
Under the bill, businesses will also be able to use an increased Section 179 deduction which was raised $500,000 to $1 million for new asset purchases while also increasing the phase-out threshold to $2.5 million. For five years, the bill also allows for immediate 100 percent expensing, but afterwards the provision phases out at a rate of 20 percent every year.
The package restricts operating loss deductions for farms by limiting the carryback deduction to 80 percent of taxable income for the previous two years. Carry forwards would be permitted indefinitely.