Summary of Proposed Farm Tax Legislation
On October 4, the Senate Finance Committee approved, on a 17-4 vote, the Heartland, Habitat, Harvest and Horticulture Act of 2007. The bill was introduced into the full Senate on October 25, 2007.
The following is a summary of the major provisions of the legislation:
- A new and permanent Agricultural Disaster Assistance Trust Fund to cover losses not covered by crop insurance. The proposal requires farmers and ranchers to purchase crop insurance in order to be eligible for disaster assistance. The Trust Fund will provide assistance to specialty crop farmers whose trees, bushes and vines are lost due to a natural disaster for the cost of reestablishing orchards and vineyards.
- A new program under which USDA will conduct early pest detection and surveillance activities in coordination with the states in order to better protect against the spread of plant pests which could cause crop losses.
- An increase in the loan limit for “Aggie Bonds” (tax-exempt bonds that provide low-interest loans for first-time ranchers and farmers). The proposal would increase the loan limit from $ 250,000 to $ 450,000 (and index the limit for inflation). The proposal would also eliminate the dollar limitation in the definition of "substantial farmland."
- Provide for installment payment of recapture tax triggered by sale or exchange of single-purpose agricultural structures.
- Provide an option for landowners participating in the CRP to either continue to receive CRP rental payments or a corresponding tax credit. The credit would offset both income and self-employment taxes.
- Provide an option for landowners participating in the Wetlands Reserve Program or the Working Grasslands Protection Program to either continue to receive cash payments for easements sold to the government or a tax credit of equivalent amount.
- Provide the CRP payments are to be statutorily defined as “rental payments” in the hands of retired or disabled farmers (e.g., those persons receiving social security retirement or disability benefits) and, thus, not subject to self-employment tax.
Note: The proposal does nothing to eliminate self-employment tax
on CRP payments in the hands of active farmers or other persons or
entitities not receiving social security retirement or disability benefits.
- Permanently extend the tax incentive for conservation easements included in Pension Protection Act of 2006 which allows taxpayers to deduct up to 50% of their adjusted gross income (AGI) for donations of conservation easements and carry forward the deduction up to 15 years. Farmers and ranchers can deduct up to 100% of their AGI for donations of conservation easements.
- The creation of two new tax credits for taxpayers who take voluntary measures to aid in the recovery of species that are either listed as threatened or endangered under the Endangered Species Act (ESA) or deemed by the Secretary of Interior or Commerce to be warranted for protection under the ESA.
- The creation of a new tax deduction for the cost of actions to implement recovery plans under the ESA, and an exclusion from income tax for payments received under various cost-share conservation programs.
- The establishment of a national program allowing the issuance of $ 1.5 billion tax-exempt timber conservation bonds by non-profit organizations whose holdings consist primarily of forests and forest lands and whose boards of directors includes specified representation of public officials and conservation organizations. Proceeds from the sale of bonds must be used for the acquisition of forest and forest lands that are subject to a conservation restriction, which is defined as a perpetual restriction that achieves certain conservation goals.
- An elective deduction for 60 percent of qualified timber gain.
- The creation of a new category of tax credit bonds with a total allocation of $ 400 million for projects such as distance learning and telemedicine programs, rural telephone, broadband access and rural community facility projects.
- The creation of a 50 percent tax credit for safety and effectiveness testing expenses for new animal drugs intended for use on minor animal species such as sheep and goats.
- Tax-deferred exchange treatment for the exchange of ditch company stock.
- Creation of a 30 percent personal credit for residential wind property, capped at $4,000 per year.
- An exemption from gross income for certain easement payments received from an electric utility or electric transmission company.
- A new production tax credit for cellulosic alcohol of $.50/gallon (in addition to the current $.51/gallon credit and $.10/gallon credit) for up to 60 million gallons of cellulosic fuel production in a taxable year.
- An expansion of the eligible property qualifying for 50 percent expensing to include alcohol produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis.
- An extension for two years (through December 31, 2012) of the $.10/gallon tax credit on the first 15 million gallons of ethanol production for producers with annual capacity of not more than 60 million gallons.
- The creation of a new small producer alcohol credit of $.25/gallon for facilities that produce ethanol through a process that does not use a fossil-based resource available through December 31, 2012.
- An extension for two years (through December 31, 2010) the $1.00 and $.50 production tax credits for biodiesel. Extends for four years (through December 31, 2012) the $.10/gallon tax credit on the first 15 million gallons of biodiesel production for producers with annual capacity of not more than 60 million gallons.
- A two-year extension (through December 31, 2010) of the $ 1 tax credit for diesel created through a thermal depolymerization process and caps, on a per facility basis, the $ 1 credit at 60 million gallons per year.
- An extension through 2010 of the alternative fuel tax credit for non-coal based transportation fuels. The proposal modifies the credit to include biomass-gas-based versions of liquefied petroleum gas and liquefied or compressed natural gas.
- An extension of the 30 percent alternative refueling property credit (capped at $ 30,000) for non-hydrogen property for one year (through December 31, 2010).
- A 5-cent reduction in the $.51 ethanol credit beginning with the first calendar year after the year in which 7.5 billion gallons of ethanol has been produced. The 7.5 billion target matches the renewable fuel standard passed by Congress in the 2005 Energy Policy Act.
- An extension of the tariff on imported ethanol for two years (through December 31, 2010).
- An elimination of certain refunds of duty imposed on ethanol. Present law allows duties paid upon import to be reclaimed at a later date if the same or similar product is exported, and treats ethanol blended with gasoline the same as jet fuel. The proposal ends that treatment. Any drawback for ethanol blended with gasoline is still allowed.
- An exclusion of the volume of denaturant (a substance used to render alcohol toxic or undrinkable) in the fuel for purpose of calculating the volume of alcohol eligible for the alcohol fuels credit.
- The addition of qualified alcohol fuel mixtures and qualified biodiesel fuel mixtures to the definition of taxable fuel as a type of diesel fuel.
- A limitation on farm losses claimable by an individual, estate, or partnership on Schedule F to $200,000 if the taxpayer has received ag program payments or CCC loans. Losses limited in a particular year may be carried forward.
- A modification of the farm and non-farm optional method for calculating net earnings from self-employment such that electing taxpayers may be eligible to secure four credits of Social Security benefit coverage each tax year by increasing and indexing the thresholds.
- Information reporting for market gain associated with the repayment of a CCC loan (codifying the requirements of IRS Notice 2007-63) irrespective of whether the taxpayer repays the loan with cash or uses CCC certificates in repayment of the loan.
- Disallowance of tax-deferred exchange treatment for exchanges of unimproved real estate (for which the owner is receiving ag program payments or CCC loans) for improved real estate, unless the undeveloped land is permanently retired from the farm programs.
- Codification of the economic substance doctrine.
- 5-year depreciation period for new farm machinery and equipment used in a farming business.
The Center for Agricultural Law and Taxation does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. The Center's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.