When Do I Report My Crop Insurance Proceeds?
We had a reader ask the following question:
“I was flooded on one farm & hailed on another so received multi-peril income this year. How much of our MPCI can be deferred?”
Without knowing all the facts here, we can give general advice on how much crop insurance proceeds can be deferred from one year to the next. There are several rules that must be followed:
- The crop insurance must be for damage to the crop, not reimbursing you for a reduction in crop prices.
- The general rule is that more than 50% of your crop sales normally occur in the following year. For example, if you harvest corn in October, normally sell 35% at harvest and the remainder in the following year, you can defer your crop insurance proceeds. However, if normally sell more than 50% of your crop at harvest or in the current crop year, you cannot defer the proceeds.
- First, the crop insurance proceeds must be received in the year of the actual crop damage. If the crop was damaged in 2011 and the crop insurance proceeds were received in 2011, then you may defer the income to 2012 as long as you meet the other rules. If the proceeds are received in 2012, you have already deferred the receipt by one year and thus it is taxable in 2012 and cannot be deferred to 2013.
- Each crop is a separate “business” unit, so each crop must be reviewed to see if the crop insurance deferral rules apply. You may have one that qualifies and one that does not. Therefore, if one crop (perhaps corn is sold more than 50% in the next year) and one crop (soybeans is sold more than 50% in the current year), then corn would qualify to be deferred and beans would not.
- You cannot pick and choose the amount that you can defer. If you elect to defer the crop insurance proceeds, you must defer all proceeds received during the year for that particular crop.
These are the general rules and will cover almost all situations, however, there are usually some anomalies out there and you always need to review this with your income tax advisor.
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.
Our client received his crop insurance payment in Jan. 2012. The crop was damaged in 2011 and he would have normally sold the crop in 2011.
Can we report the income in 2011? He is a cash based taxpayer. Has other 2011 losses that will offset the crop insurance income and expects a large increase in income in 2012.
Thanks