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The Tax Cuts and Jobs Act in the Ag Industry

We've got an update on the Tax Cuts and Jobs Act (TCJA) which Congress passed in December 2017. This once-in-a-generation tax bill provides many generous tax reductions, including lower federal income rates, 100% expensing of depreciable personal property, larger tax credits for children, virtual elimination of the Alternative Minimum Tax, expanded use of Cash Method of Accounting, and a doubled estate tax exemption. It's almost as if Congress made paying taxes voluntary!

Learn how to take advantage of the  100% expensing election that applies to new AND used property.  (This is a guest blog article by Lutz.)


In December 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), a once-in-a-generation tax bill that provides many generous tax reductions, including lower federal income rates, 100% expensing of depreciable personal property, larger tax credits for children, virtual elimination of the Alternative Minimum Tax, expanded use of Cash Method of Accounting, and a doubled estate tax exemption. It's almost as if Congress made paying taxes voluntary. Said another way, if you've paid taxes on your 2018 return, you didn't plan hard enough to avoid them.


Businesses seeking to grow and expand can take advantage of the 100% expensing election that applies not only to new property, but also used property. It applies to nearly all business property except land (of course), building structures and property purchased from related parties. Even land improvements such as parking lots, fencing, drainage and irrigation systems, and landscaping are eligible for immediate expensing. 
 
Sadly, Congress made a major error in their rush to pass the law. While early drafts allowed 100% expensing of Qualified Improvement Property (“QIP”), or improvements to interior portions of nonresidential real estate, congress failed to make QIP eligible for expensing in the final version of the bill. Much to everyone's chagrin, they later failed to fix this error like they did with the Grain Glitch. So what's a taxpayer to do? One option still available is Section 179 expensing. This allows taxpayers to fully expense up to $1,000,000 of QIP subject to certain limits. Again, with these options available, paying income taxes is almost voluntary.
 
Most of these provisions are effective with 2018 returns, but sadly, all good things must come to an end. The TCJA is scheduled to sunset, or phase out, effective after 2025. That means opportunities to make gifts up to $11,000,000 to your kids will expire in less than seven years and the exemption will return to $6,000,000. What happens to jumbo gifts when the exemption sunsets? Will they be subject to the 40% gift tax? Happily, no. The IRS published a notice saying they won't claw back jumbo gifts when the exemption reverts to the lower amount. It's time to start serious estate planning, including consideration of GRATs, sales to Intentionally Defective Grantor Trusts, and life insurance trusts. 
 
Unfortunately, the once-in-a-generation tax bill is too complicated to distill in one short article. Accordingly, we'll continue to keep you updated with other TCJA issues, including important topics such as Qualified Business Income. Until then, keep tax planning on the front burner.  
LutzThis article was written by Jim Honz, Tax Shareholder at Lutz. Lutz is a valued Partner in Progress of the Nebraska Grain and Feed Association. 
To learn more about Lutz visit https://www.lutz.us/.

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