QUINCY -- Farmers seem to be one of the groups that will benefit the most from the Tax Cuts and Jobs Act.
Under the new tax law, farmers in 2018 will be able to deduct 20 percent of their total sales when they sell their crops to a cooperative, which for some farmers could mean zero taxable income.
Reuters reported last month that ethanol producers and privately run grain handlers fear they will be cut out of the equation. ADM told Reuters it was evaluating the provision and "various potential solutions" to it.
"It is going to put us out of business as a private if something is not changed right off the bat," said Doug Bell, president and general manager of Bell Enterprises Inc. "There is just no reason whatsoever why a farmer would do business with anyone other than a co-op."
Some farmers seeking to take advantage of the new deduction are already asking about transferring grain they have stored at private elevators and selling it to cooperatives, Bell said.
The Associated Press reported that the provision was inserted into the tax law bill by Senate Committee on Agriculture, Nutrition and Forestry members John Hoeven, R-N.D., John Thune, R-S.D., and other legislators just before the bill was sent to President Donald Trump. Hoeven and Thune are negotiating changes to the provision with the National Council of Farmer Cooperatives and the National Grain and Feed Association, Agri-Pulse Communications said.
"I think at the end of the day what it boiled down to is the staff didn't know what they were doing. ... They rushed this thing through," U.S. Rep. Collin Peterson of Minnesota, the ranking Democrat on the House Agriculture Committee, told the Associated Press.
Alterations to the pass-through deduction also will affect farmers, although they will not be able to make both the pass-through and co-op sale deductions. The pass-through deduction on taxable income for sole proprietor businesses -- which most farmers operate as -- will increase to up to 20 percent for 2018. The change to the pass-through deduction expires Jan. 1, 2026.
"This area has the most confusion," said Sue Ann Gerveler, senior tax consultant for Hunter, Gray and Stenn. "It's making people think they should have a different form of operating business. I would caution people not to make any quick changes. You need to consult your tax advisor."
One of the few changes to go into affect for 2017 filings is the change to the bonus depreciation, which increased from 50 percent to 100 percent retroactively on Sept. 27, 2017. In Illinois, the 50 percent bonus was not available, but the 100 percent is now.
Gerveler said farmers generally couple the bonus depreciation with Section 179, which allows a business to deduct the full purchase price of financed or leased equipment. Under the new tax law, the cap on the 179 deduction is raised from $500,000 to $1 million. The lives of farm assets will decrease from seven to five years.
The estate tax exemption will double in 2018 under the new law. Married couples can exclude $22.4 million, and individuals can now exclude $11.2 million in asseets.
Limitations on interest deductions are applicable for large businesses, but farmers are excluded and can still deduct their interest, Gerveler said.
In 2018, only real property, like farm land and buildings, will qualify for like-kind exchanges. Tangible personal property, like combines and tractors, will not qualify.