New Tax Law Impact on Farmers?
There was a lot of news coverage on the new tax bill signed by President Trump just before Christmas. Watching and listening to the news reports it was extremely difficult to know what impact it would have on farmers. One side would say 80 percent of Americans would see a tax cut while the other would say it only helps the rich and big business. I guess time will determine which one is correct. I suspect it will be somewhere in between.
During the process, I did hear that state taxes would no longer be deductible on your Federal Income taxes above $10,000. I was not really concerned until I saw reports of people lined up to prepay their real estate taxes before the end of the year. Yes, I found out the $10,000 limit includes state income taxes and real estate taxes. Farmers that own land pay a lot of real estate taxes. Now I was a little worried. All you can do is wait for the experts to read the tax bill and then explain it to us in English that we can understand what it means!
I received an email from Jeff Schultz Farm Business instructor at the South Central College in Faribault about the new tax bill and real estate taxes. "Individual taxpayers can continue to claim on an itemized deduction in an amount up to $10,000 ($5,000 married filing separately) per year an aggregate of state and local income taxes and or property taxes." Well, I knew that, but the next phrase is what I wanted to see. "Notably, property taxes incurred in a trade or business would continue to be fully deductible on a schedule C, Schedule E, or Schedule F."
I did not know what a Schedule C or Schedule E was, but I knew what a Schedule F was. Many farmers file a Schedule F. Plus, I think you can assume the IRS would consider farming as a business. So, farmers can still deduct farm real estate taxes. The next question that came to mind is what if you are a retired farmer renting your land? I suspect retired farmers do not file a Schedule F? I am quite certain as time goes on many questions will be answered. Hopefully, you have a good accountant!