The U.S. House of Representatives Thursday afternoon passed, by a vote of 227 to 205, a tax reform package that drew generally high marks for how it treats agriculture.
According to Danielle Beck, NCBA director of government affairs in Washington, D.C., the House tax reform bill immediately doubles the exemption limits on the death tax. “Then, in 2025, the death tax would be permanently repealed. That’s excellent news. We’re thrilled that House members maintained their long-standing commitment to the livestock and agricultural industries and they’re going to get rid of the death tax once and for all,” she says.
Along with death tax repeal, the House continued to preserve the step-up in basis that benefits agricultural producers.” In addition, the House would allow for full and immediate expensing after September 2017 but before January 2023. So all purchases, you’d receive 100% bonus depreciation right off the bat and that’s excellent news.”
What’s more, the House bill increases the small business expensing cap under Section 179 from $500,000 to $5 million and it lifts the dollar for dollar phase out that exists at $2 million right now to $20 million. That would also be effective for tax years starting in 2017 going through 2023.
“In addition, it increases and expands cash accounting. So the eligibility threshold would be lifted from $5 million to $25 million and would extend to farm corporations, farm partnerships with a corporate partner and family farm corporations,” Beck says.
Now the bad news
But the House measure does contain some language that concerns NCBA. “The final piece of legislation creates a small business exclusion. So any business with gross receipts under $25 million would be exempt from an interest deduction limitation. For those business entities with gross receipts in excess of $25 million, your ability to deduct interest would be restricted to 30% of your taxable income. “
For the beef business, the impact may be felt most in the cattle feeding segment. “Based on our calculations, anywhere between 5,000 and 8,000 head capacity, depending on what their numbers are and what the market looks like at that time, could be prevented from deducting their interest expense. That incredibly problematic for a highly leveraged industry that utilizes credit not just for the purchase of land and equipment, but for cattle, for feed and for all the necessary expenses for raising livestock,” Beck says.
But that doesn’t mean it’s a done deal. Beck is hopeful that can be fixed when the Senate finishes its version of a tax bill and the two measures go to a conference committee to hammer out differences.
Focus now turns to the Senate, where their version of a tax bill is already under construction. “The base bill in the Senate, it’s pretty good. While they don’t fully repeal the death tax, they do double the exemption limits right off the bat. And we’re thrilled about that. They also expand [Section] 179, expand bonus depreciation. Not quite in the same meaningful way the House does, but any sort of bump up really helps,” she says.
At the moment, the Senate bill includes a fix on the interest deduction issue. “Any producers with gross receipts in excess of $15 million, which is what the Senate’s small business exclusion is, could elect to continue deducting interest and in exchange may have to give up bonus depreciation.”
But the Senate is a long way from completing any sort of tax reform language. “Lawmakers on Capitol Hill need to hear from their constituents,” Beck says. “If you utilize significant interest expense and you’re able to deduct that and it makes a difference for your business, share that story with members on Capitol Hill, whether they’re in the House of Senate.
“Overall, this process, we’ve got quite a way to go. So hearing from constituents who are supportive of fundamental tax reform, they want to see a bill enacted, that’s going to help member show are perhaps hearing from constituents who aren’t as happy with this proposal.”