Loss Limitation Eliminated?

For years beginning after 2009, farmers who received any direct or counter-cyclical payments from the USDA (under Title I of the Food, Conservation and Energy Act of 2008), any payment elected to be received in lieu of such payment, or any CCC loan, are limited in the amount of otherwise deductible Schedule F farming loss. For this purpose, CRP payments are not treated as USDA subsidy payments. Farm losses arising by reason of fire, storm, or other casualty, or because of disease or drought, are not subject to the limitation. An individual who receives applicable subsidies may not deduct a loss the greater of $300,000 or the aggregate net farm income for the previous five years. This provision is found in the Internal Revenue Code at Section 461(j). Or it was, until just recently.

In cleaning up some deadwood in the Internal Revenue Code, the Tax Increase Prevention Act (the extender legislation) enacted December 19, 2014 moved some provisions around. In the designation of the amended code, one of the provisions inadvertently assigned the same subsection reference as an existing provision. That existing provision was the farm loss limitation discussed above.

We confirmed with House Ways & Means staffers that the farm loss limitation didn’t go away. A technical correction is necessary to correct the reference in the Internal Revenue Code.

The good news: due to changes in the Farm Bill, only the receipt of a CCC loan will trigger this provision.

Special thanks to Chris Hesse of our Minneapolis office for this post.