USDA Doubles Down on Equipment Gains
We had a feeling when we saw that ERP has already issued at least $6.4 billion of payments that USDA might not give us the result we wanted on equipment gains and that is the reality.
USDA just released updated guidance on the definitions of farm adjusted gross income (AGI). The bottom line is that farmers needs to have at least 66.66% of farm AGI to total AGI before they can include equipment gains. This will prevent many farmers from qualifying for increased payments.
Also, doing custom farming or harvesting services likley will have the same rule apply inlcuding providing seed to farmers. Many farmers sell seed as a sideline and AGI from providing these services will need to meet the same test. However, since this is AGI and not gross receipts, farmers can properly allocate expenses against this seed income to arrive at the correct amount of AGI.
The guidance also provides for situations where the entity may not be in existence for all three years. In those cases you can use AGI from predecessor entities. And it finally clarified that you use loss years in your AGI calculations. Several tax advisors thought loss years could be ignored and that is not the case.
Finally, the FSA indicated that AGI is calculated assuming the taxpayer filed a separate tax retunr for married couples. This generally helps farmers qualify for increased payments.
No changes were made regarding farmers with losses. In that case, as long as negative farm AGI is greated than total negative AGI by at least 75%, then the farmer qualifies.
Bottom line is that we did not get what we wanted on the equipment gain definition but the new Farm Bill could make changes to these definitions and the changes could be retroactive.
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.
What does the new rule mean, when an entity is a beginning farmer? That is, the case in which the entity started farming in 2020, qualifies for 2020 ERP, hit the payment limit, but has no farming income whatsoever in the base period 2016-17- and 18?
The rule apparently says a new entity has to consdier only the years in which it farmed, of the years 2016-17-and -18. But what if it didn’t farm at all during the base period? In this case, the “entity” existed, as a social security number, with off-farm income, during the base period, and that SSN started farming in 2020.