The Iowa Farm Bureau Federation (IFBF) applauded the comprehensive tax reform legislation that Congress passed last week. President Donald Trump signed the measure Dec. 22.
“Farmers and ranchers need a tax code that recognizes their unique financial challenges and this measure does that, to a large extent,” said Craig Hill, IFBF president. “This tax reform bill will encourage success, investment and entrepreneurship for farmers and rural businesses across the entire state.”
Along with lowering their overall tax rates, several provisions in the tax bill the legislation that will help Iowa farmers, including a provision that includes deductions on pass-through income, interest expensing, Section 179 small business expensing and bonus depreciation.
Death tax relief
In addition, the measure provides much needed relief for families passing the farm to the next generation, by doubling the estate tax exemption to $11 million and allowing for stepped up basis, Hill noted. “A full repeal of this very unfair tax would have been better, but the doubling of the exemption and stepped up basis does help,” he said.
Farm Bureau members are grateful to Iowa’s Sens. Charles Grassley and Joni Ernst, along with Rep. Steve King, David Young and Rod Blum, who help guide the measure through Congress and voted in favor of tax reform measure, Hill said.
“Helping Iowa farmers keep more money at home is a step in the right direction in assuring sustainability of family farming, because we’re staring down a fourth year of a stifled ag economy,” he said. “The passage of this tax bill also means Iowa farmers can reinvest more of their hard-earned income for critical needs, such as upgrading equipment or the expanding conservation practices,” he said.
The tax legislation, he said, is also a big victory for all of Iowa, where 33 percent of the economy and one in five jobs are tied to agriculture.
The passage and signing of tax reform was also cheered by the American Farm Bureau Federation (AFBF). Zippy Duvall, AFBF president, noted that the tax reform package includes many changes to the tax code, most notably lower individual tax rates, that will benefit farmers, while maintaining key deductions and credits that farmers rely on.
“So, thanks to a lot of hard work by Congress and the administration, farmers will have both lower rates and all the tools they’ve always had to manage their businesses,” Duvall said.
Gains for agriculture
For farmers the tax reform measure will:
- Allow for a 20 percent deduction on pass-through business income through 2025. This is expected to help lower the effective overall tax rates for most farms taxed on individual tax rates.
- Maintain farmers’ ability to use cash accounting. Cash accounting is the preferred method of accounting for most farmers and ranchers because it provides the flexibility needed to optimize cash flow for business success, plan for business purchases and manage taxes.
- Expand of the Section 179 small business expensing to $1 million and increases the expenditure level at which the deduction begins to phase out to $2.5 million. Both levels are indexed for inflation. It also allows businesses to fully and immediately write off business investments through 2022. This will help farmers depreciate large business expenses, such farm equipment.
- Continue to allow farmers and small businesses to deduct paid interest as a business expense. This provision is important to farmers who typically rely on borrowed money to buy production inputs, vehicles and equipment, and land and buildings, making interest expense deductions also very important.
The measure also protects the wind energy production tax credit, which Grassley originally authored and championed during the writing of the tax bill.
While the tax reform bill was very welcome for agriculture, AFBF’s Duvall noted that most of the provisions in this tax bill are temporary, lasting for only seven years. “Farm Bureau will now focus our work on making those important tax deductions, lower rates and the estate tax exemption permanent,” he said.