2008 Farm Bill Tax Law Changes & Other 2009 Revisions

1. 2008 Farm Bill Tax Law Changes & Other 2009 Revisions Tax rules that apply to farmers and ranchers. J C. Hobbs Assistant Extension Specialist OSU Dept of Ag Economics

2. 2008 Farm Bill Tax Law Changes • Conservation Reserve Program (CRP) payments • Preferential treatment for donation of conservation easements • Endangered species recovery expenses • Depreciation for racehorses

3. 2008 Farm Bill Tax Law Changes • Limits on deduction of farm losses • Farm optional method paying for Self-Employment Tax • Commodity Credit Corporation (CCC) information reporting (1099-G)

4. Conservation Reserve Program Payments • CRP payments received after 2007 not subject to Self-Employment Tax for farmers who are retired or receiving disability benefits. • If not retired or disabled, must look at each situation to determine if SE Tax must be paid.

5. Conservation Easements • 2-year extension of charitable contribution deduction for cap gain property donated for qualified conservation purposes. • For qualified farmer or rancher; the amount of the deduction generally will equal the FMV of the property on the date of the contribution • Property must be donated during 2008 and 2009 tax years

6. Endangered Species Recovery Expenses • After 2008, expenses incurred or paid for management practices under the Endangered Species Act of ’73 can be deducted in the year incurred versus capitalized over useful life.

7. Racehorses • Racehorses that are placed in service after 2008 and before 2014 are given a 3-year depreciable life no matter the age.

8. Limits in Deductible Farm Losses • After 2009, losses in a year when Direct or Counter Cyclical payments or any CCC loans are received the loss is limited to the greater of $300,000 or total net farm income for the previous 5 years. • Farm income = all income or loss from farming businesses. • Disallowed loss is carried forward and deducted. • Excludes loss from fire, storm, drought, or disease which are casualty losses and deductable in a different manner.

9. New Threshold for Farm Optional Method for Self-Employment Tax • Tax years after 12/31/07, farmers can elect to get 4 quarters of coverage for Social Security retirement, disability, and retirement benefits . • This provides farmers or the family to acquire the needed quarters of coverage to obtain greater disability or survivor benefits. • A quarter of coverage for $1,050 of wages and now indexed for the future.

10. Information Reporting on CCC Transactions • New rule effective for farmers that repay CCC loans after Jan. 1, 2007, they will be issued 1099-G’s for the IRS 1099 matching program to insure proper reporting.

11. 2009 Capital Gain Rates • Capital Gain is the amount of the sale price in excess of basis. • 0% capital gain rate for individual in the 10% and 15% tax brackets for 2008 through 2010 • 15% capital gain tax rate for individuals in the 25%, 28%, 33%, and 35% tax brackets.

12. Section 179 Expensing • Assts with fixed life: 5, 7,10,15, or 20 years. • New rules for tax years beginning in 2009, the section 179 expense deduction is $133,000 subject to an investment limit > $530,000 of property placed in service. • Must not create a loss. • Purchased capital assets that must be depreciable.

13. Contact InformationJ C. Hobbs580-237-7677orjc.hobbs@okstate.edu