Will CCC Loans Limit My Farm Loss

The tax laws require excess farm losses to be limited if the farmer receives an applicable subsidy or has a loan from the Commodity Credit Corporation (CCC).  Applicable subsidies were direct, counter-cyclical and ACRE payments under the old 2008 Farm Bill.  These payments were repealed by the 2014 Farm Bill, however, loans from the CCC are still held by many farmers and with crop prices getting lower, they may become more common.

For example, a farmer can get a non-recourse loan on their wheat crop at $2.94 per bushel.  There are several parts of the country where cash wheat prices are near this price.  Getting a CCC loan allows the farmer to get needed cash for their crop without having to market the crop.  If prices increase in value, the farmer can pay off the loan and keep the difference.  If prices continue to drop, the farmer can “put” the crop to the CCC and net $2.94 per bushel less any interest cost.  The current interest rate on this type of loan is 1.625%.

Additionally, the CCC provides farm storage loans.  I would guess that these loans may be more common than crop loans for many farmers.  When driving around the Mid-West, I see a lot of new grain bins that have been built and I am guessing many were financed via a CCC loan.

Therefore, if you have a CCC loan, your farm losses will be limited to the greater of $300,000 or cumulative net farm income during the past five years.  Some farmers may have a large loss this year or over the next couple of years.  They would like to carry back this loss and get an income tax refund to help with working capital on the farm.  This provision may limit how much of the farm loss they can carry back.  Let’s look at an example.

Farmer Smith incurs a loss of $1 million in 2016.  During the year, he took out a loan on his wheat with the Commodity Credit Corporation; therefore, he is subject to the excess farm loss rules.  His net farm income during 2011-2015 was $450,000.  He can only deduct $450,000 of the farm loss on his 2016 tax return.  This creates a net operating loss of $450,000 which he can carry back five years, however, his net income for 2011 was actually $1 million (he had other non-farm income).  The carryback frees up $150,000 of income tax refunds that he can use in his farm operation.  If the farm loss had not been limited, he could have gotten a refund closer to $350,000 rather than $150,000. 

As you can see, although “applicable subsidies” have disappeared, excess farm losses can be limited if you have any loan with the CCC.  If this applies to your situation, please make sure to review with your tax advisor before year-end.

Paul Neiffer, CPA

CliftonLarsonAllen, LLP