The Trump tax cuts, officially known as the Tax Cuts and Jobs Act (TCJA) of 2017, have been a topic of significant debate since their inception. It appears the Republicans might have enough political capital to both extend the TCJA and enact additional tax cuts that could help farmers.
The major tax cuts that have helped farmers since 2017 include (but not limited to):
- Reduction in most tax rates
- 100% bonus depreciation through 2022
- Section 199A 20% net deduction on farm income
- Doubling the estate tax exemption (currently $13.99 million)
- Increasing the child tax credit to $2,000
However, there were also some provisions that penalized many farmers:
- Limiting the state and local tax (SALT) deduction to $10,000
- Eliminating the tax-free treatment of equipment trades
- Reducing 100% bonus depreciation (there will be none starting in 2027)
- Dropping the corporate tax rate to 21% (most farmers paid 15%, so this was a 40% tax increase)
The House Republicans passed a budget bill to allow income taxes to rise by $4.5 trillion over 10 years. The Senate is proposing to ignore the budget effect of making the Trump tax cuts permanent, and the House could go along with this proposal.
This effectively allows Congress to make the Trump tax cuts permanent and allows for an additional $4.5 trillion of reduced taxes in other areas such as:
- Eliminating taxes on tip income
- Eliminating taxes on social security income
- Eliminating taxes on overtime
- Eliminating estate taxes
- Reducing the corporate income tax rate to 15% for domestic production
However, there are many provisions of the Trump tax cuts that some Republicans are not in favor of, such as the $10,000 cap on the SALT deduction. Eliminating this cap would cost about a trillion over 10 years. Most republicans are also not in favor of the Inflation Reduction Act “green” provisions and many of them will be repealed or reduced, that could include the Section 45Z fuel tax credit.
The bottom line is income tax law will change this year, and it will be dramatic. Our crystal ball right now is fairly cloudy as to the final provisions, but for most farmers the changes will likely be beneficial.
