Will NOL issue get fixed?
There is some chatter that we may get a technical corrections tax bill after the mid-term election. The most pressing issue is correcting qualified improvement property (QIP) to be treated as 15 year property and thus 100% bonus depreciation will be allowed. Currently, these improvements are considered to be 39 year property and only Section 179 may be taking on this or depreciated over 39 years on a straight-line basis.
Now for farmers, they can still treat these items as 20 year property (in most cases) and thus it will still continue to qualify for 100% bonus.
That is the most pressing issue, but there is a slight chance that the net operating loss (NOL) rules concerning the two year carryback may be updated to apply only to taxable years beginning in 2018. The law states it applies to years starting with years ending in 2018 and thus, farm losses can only be carried back two years for those entities. For tax years ending October 31 or November 30 this year may want to consider creating a NOL (if income will likely be zero or less) for C corporations to take advantage of this possible change. Even if it does not get changed, the good news is that at least this loss will be 100% allowed against taxable income instead of 80%. That rule was effective for years beginning in 2018.
Fiscal year partnerships and S corporations will flow their income through to individuals so this change would not apply to them.
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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