Significant Tax Developments for Farmers

Over the past month, there have been several significant developments of importance to farmers, ranchers, agribusinesses and the professionals that represent them.  
In early January 2013, Congress enacted a new tax law designed to deal with many of the provisions that had expired before 2012 (in addition to those expiring at the end of 2012).  The big developments for many agricultural clients include the retention of the $5 million exemption equivalent of the unified credit for estate and gift tax purposes (indexed for inflation) along with portability of the first deceased spouse’s unused exclusion amount.  While the top rate increased to 40 percent, that change is easy to deal with.
Also, the depreciation provisions in the new law were largely unexpected.  The retroactive increase in the I.R.C. §179 amount to $500,000 for 2012 and extension for 2013 is big.  Also, the ability to make or revoke an I.R.C. §179 election on an amended return for an open tax year was extended through tax years beginning before 2014.  That provides a huge planning tool.  If a client wants to dispose of an asset on which a large amount of expense method depreciation has been claimed, to avoid a significant amount of tax on the disposition the election can be revoked and made on a different asset that the client is not disposing.  The IRS in 2008, gave the clearance for making in addition to revoking such elections without the need for Treasury Regulations (see Rev. Proc. 2008-54, 2008-38 I.R.B. 722).
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