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Overview of the tax changes in the Heartland, Habitat, and Horticultural Act of 2008 (MS Word)
Overview of the tax changes in the Heartland, Habitat, and Horticultural Act of 2008 (.pdf)
Overview of the tax changes in the Heartland, Habitat, Harvest, and
Horticulture Act of 2008
Dear Reader,
The recently enacted “Heartland, Habitat, Harvest, and Horticulture
Act of 2008” (the 2008 Farm Act) contains a package of tax changes
including specialized tax breaks for the farming industry (along
with a crackdown on farm losses) and new and modified credits
related to the production of certain fuels, among other things.
Here's a summary of the key tax provisions in the 2008 Farm Act:
Conservation reserve payments made after 2007 are not subject to
self-employment tax if received by an individual who is getting
Social Security retirement or disability payments.
The favorable tax treatment of capital gain property donated for
qualified conservation is extended for two years (through 2009).
A new deduction is allowed for endangered species recovery expenses
incurred after 2008.
There is a one-year cut in the tax rate for a corporation's
qualified timber gain. For tax years ending after May 22, 2008 and
beginning on or before May 22, 2009, a 15% alternative tax applies
on the portion of a corporation's taxable income that consists of
qualified timber gain (or, if less, the net capital gain) for a tax
year. In addition the rules for REITs (real estate investment
trusts) holding timber property are liberalized temporarily.
A new tax credit is created for the development of cellulosic
biofuels, which are biofuels produced from agricultural waste, wood
chips, switch grass and other non-food feedstocks. This credit,
available for fuel produced after 2008 and through 2012, is a
nonrefundable income tax credit for each gallon of qualified
cellulosic fuel production of the producer for the tax year. The
amount of the credit per gallon is $1.01, except for cellulosic
biofuel that is alcohol. For cellulosic biofuel that is alcohol, the
$1.01 credit amount is reduced by (1) the credit amount applicable
for such alcohol under the alcohol mixture credit in effect at the
time cellulosic biofuel is produced, and (2) in the case of
cellulosic biofuel that is ethanol, the credit amount for small
ethanol producers as in effect at the time the cellulosic biofuel
fuel is produced.
The 51¢ per-gallon incentive for ethanol is reduced to 45¢ per
gallon for calendar year 2009 and thereafter. This reduction is
subject to an exception geared to ethanol production.
A new tax credit is created for agricultural chemicals security. The
new law provides retailers of agricultural products and chemicals
and manufacturers, formulators, or distributors of certain
pesticides a business tax credit for 30% of costs for the protection
of such chemicals or pesticides. Such protection costs include
employee security training and background checks, installation of
security equipment, and computer network safeguards. The credit has
a $2 million annual limit and a per facility limitation of $100,000
(reduced by credits received for the five prior tax years). This
credit is effective for expenses paid or incurred after May 22,
2008, and before Jan. 1, 2013.
Qualifying mutual ditch, reservoir, or irrigation company stock may
be eligible for Code Sec. 1031 treatment. This provision is
effective for exchanges after May 22, 2008.
For property placed in service after 2008 and before 2014, all
racehorses are classified as three-year property for depreciation
purposes, regardless of their age.
Temporary assistance to victims of the 2007 Kansas tornado disaster
is provided, including increased ability to deduct personal losses,
increased business expense deductions, and help for affected
businesses that continued to pay their employees after the disaster
struck.
The amount of farming losses (other than those arising because of
fire, storm losses, etc.) that a taxpayer may use to reduce other
non-farming business income is limited for certain taxpayers. For
tax years beginning after 2009, the farming loss of a non-C
corporation taxpayer for any tax year in which any applicable
subsidies are received will be limited to the greater of (1)
$300,000 ($150,000 in the case of a married person filing a separate
return), or (2) the taxpayer's total net farm income for the prior
five tax years. Applicable subsidies are (a) any direct or
counter-cyclical payments under title I of the Heartland, Habitat,
Harvest, and Horticulture Act of 2008 (or any payment elected in
lieu of any such payment), or (b) any Commodity Credit Corporation
(CCC) loan. Total net farm income is an aggregation of all income
and loss from farming businesses for the prior five tax years.
For tax years beginning after 2007, the farm optional method and
nonfarm optional method for computing net earnings from
self-employment are modified so that electing taxpayers may pay more
in optional self-employment taxes and thus become eligible for
Social Security benefits.
The CCC is required to always provide IRS and the farmer with
information returns showing the amount of market gain the farmer
realizes when he or she repays a CCC market assistance loan.
For large corporations (those with assets of at least $1 billion),
estimated tax payments due in July, August, and September of 2012
are increased by 7.75% of the payment otherwise due, and the next
required payment is reduced accordingly.
Please keep in mind that this is only a summary of the tax changes
in the new law. If you would like to discuss any of these provisions
in greater detail, please do not hesitate to call.