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Taxes for ranchers Jirapong Manustrong / Getty Images

The taxman cometh, but with a smaller bite

The revised Tax Cut and Jobs Act eases death tax penalties.

Not all provisions of the revised federal income tax code will benefit crop and livestock producers. But with changes to the “death tax,” most ranches will be protected from the old inheritance-robbing law that often forced families to sell part of their land just to satisfy Uncle Sam.

The death tax, or Estate Tax in true IRS terms, has long been a negative factor when a ranch owner dies. But in the Tax Cut and Jobs Act (TCJA), the Estate Tax exemption was doubled to $11 million per person, or $22 million per couple, said Paul Neiffer, a principal in the CliftonLarsonAllen accounting firm in Yakima, Wash. He addressed tax reform during a learning session at the Texas and Southwestern Cattle Raisers Association convention in Fort Worth earlier this month.

The amount is indexed to rise with inflation over the next eight years. At the end of 2025, the provision expires and the law reverts back to the previous Estate Tax law. USDA indicates that after accounting for adjustments, deductions and exemptions, only 0.11% of farm estates would have had a tax liability under TCJA.

“If you’re a ranch family, you can easily get out of paying any estate tax,” Neiffer said. “This is a great opportunity to transfer assets to the next generation.”

TSCRA, NCBA and other state and regional cattle associations and farm groups have fought for years to obtain changes to the Death Tax law. They are pleased with changes seen in the TCJA. However, Farm Bureau notes, “if the exemption is allowed to revert back, more farms and ranches will be subject to estate taxes.

“And, as long as the exemption level is temporary, money must be spent on estate tax planning rather than on growing farm and ranch businesses.”

Permanent tax changes 

TCJA contains many permanent provisions that help farmers and ranchers. They include:

  • Section 179 Small Business Expensing increased to $1 million.
  • Indefinite carry forward of deductions indexed for inflation.
  • Depreciation for farm equipment shortened from seven to five years.
  • Corporate tax rate is now a flat 21%.

Neiffer said changes to Bonus Depreciation provisions should also benefit producers. “This will include 100% depreciation of everything purchased other than farmland,” he said, citing this example: “A rancher purchases $500,000 of used equipment, $350,000 of tiling (to facilitate drainage) and buys land with a machine shed worth $500,000. Under the old tax law, the rancher could only deduct $175,000 on the new tiling using 50% bonus depreciation.

“Under the new law, the rancher could fully depreciate all $1.35 million using 100% bonus depreciation, or he could elect out of bonus on any of the assets on an asset by asset basis.”

Neiffer said bonus depreciation will be phased out at 20% per year beginning in 2023, dropping to zero depreciation from 2027 and beyond.

For those ranch families that do not have large deduction amounts, the increase in the standard deduction from $12,000 to $24,000 for a married couple filing jointly should help ease the tax burden.

No matter what, the use of a trusted CPA, tax attorney and/or family planner will likely be essential, Neiffer said.

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