Update on the Net Investment Income Post
In our previous post, we gave an example of a farmer selling farm land that was cash rented out and it being subject to the new net investment income tax. This was designed an illustration, but we have gotten feedback that in many cases this 3.8% tax may not apply to a farmer in this situation.
This part of the law can be extremely complex to determine if the tax will or will not apply (there are multiple code sections dealing with this issue). If this situation applies to you, it is extremely important to review your situation with your tax advisor before doing this type of sale. By selling the land in the wrong year or with the wrong set of facts, you may expose yourself to additional tax and the cost could easily exceed $100,000. A $10 million gain could cost you $380,000.
Again, we enjoy getting feedback from our readers and don’t worry if you think it will hurt our feelings to be told that we are wrong. I have been married for over 30 years now and I know I am wrong (just a little husband humor).
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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