Editor’s note: “Fertile Ground For Tax Savings,”
which outlines recent tax legislation that creates opportunities for
farmers and others in agribusiness, was published in the October/November
2008 issue of Corn South. Following are updates:
On Oct. 3, 2008, President Bush signed into law the Emergency Economic
Stabilization Act of 2008. Although the primary purpose of the legislation
was to provide relief to troubled Wall Street businesses, the Act
also provided a number of new tax breaks for individuals and businesses,
along with extensions of existing tax cuts. Many of these tax cuts
are available to farmers, and some of the tax incentives were specifically
enacted for the benefit of farmers.
Increased AMT Exemption
The Act patched the alternative minimum tax (AMT) yet again.
For tax year 2008, the AMT exemption amounts are as follows:
• $69,950 for spouses filing jointly or surviving spouses (increased
from $66,250 in 2007).
• $46,200 for single persons (increased from $44,350 in 2007).
• $34,975 for spouses filing separately (increased from $33,125
The Act also provides an extender for a patch that allows certain
nonrefundable personal credits to offset the AMT. Applicable credits
include the child and dependent care credit, the credit for the elderly
and disabled, the child tax credit and the Hope and Lifetime Learning
Extension Of Options To Deduct Sales Taxes
The Act extends until 2010 the option for taxpayers to deduct
state and local sales taxes paid as opposed to state income taxes
Addition To Standard Deduction For Real Property Taxes
Taxpayers who choose to utilize the standard deduction are
allowed an additional deduction for real property taxes paid. This
deduction is in effect for the 2008 tax year only. The deduction is
equal to the lesser of $500 for single persons and $1,000 for married
joint return filers or the amount that would be allowed for real property
tax deduction under itemized deduction rules.
Tax-Free Distributions From IRAs
The Act extends for 2008 and 2009 the ability to make tax-free
distributions from an IRA for charitable contributions when the following
criteria are met: 1. The distribution is made to a taxpayer who is
at least 70 years old. 2. The IRA distribution is made directly to
a charitable organization (exclusive of private foundations). The
tax-free distribution is capped at $100,000 per year.
Charitable Deduction For Apparently Wholesome Foods
The Act extends the “Apparently Wholesome” food contribution
deduction to contributions made in 2008 and 2009. “Apparently
wholesome” foods are defined in the tax law as food that is
intended for human consumption and meets all quality and labeling
requirements of law, but which is not readily marketable due to age,
freshness, surplus, etc.
Under the Act, contributions of apparently wholesome foods to charities
by qualified farmers or ranchers are treated as “qualified conservation
contributions,” which are deductible under Sec. 170. Generally,
in calculating the deduction for charitable gifts of ordinary income
type property, the amount of the contribution must be reduced by the
amount that would have been recognized as gain. However, the Code
allows an enhanced deduction for contribution of apparently wholesome
foods equal to the lesser of (a) its basis plus half of the property’s
appreciation, or (b) twice the property’s basis.
In the case of a farmer, qualified conservation contributions are
deductible at up to 100 percent of the farmer’s taxable income,
as opposed to the 50 percent limitation that exists for standard charitable
deductions. Unused deductions may be carried forward up to 15 years.
Energy Incentives For Businesses
The following tax credits may be available to farmers depending
on the nature of their business:
Energy Credit. The business energy credit under Code Section 48 applies
to solar energy property, fuel cell property and microturbine property.
This credit has been extended through Dec. 31, 2016, and now includes
combined heat and power system property, qualified small wind turbine
property and geothermal heat pump systems.
Energy-Efficient Appliance Credit. Certain energy-efficient appliances,
including dishwashers, clothes washers and refrigerators, are eligible
for tax credits under Section 45M. The Act expands the appliances
available for the credit and extends the availability of the credit.
Biodiesel and Renewable Diesel Credits. Income and excise tax credits
are currently available for biodiesel and renewable diesel fuels.
The Act extends the availability of the credits until Dec. 31, 2009,
and increases the amount of the credits.
Alternative Fuel and Fuel Mixture Credits. The Act expands the currently
existing fuel and fuel mixture credits to include compressed or liquefied
natural gas and alternative fuel used for aviation. The credits are
extended until Dec. 31, 2009.
15-Year Write-Off Provided For Qualified Leasehold Improvements
And Qualified Restaurant Property Extended For Two Years And Liberalized
Under pre-Act law, qualified leasehold improvements and qualified
restaurant improvements that were placed in service before Jan. 1,
2008 are depreciated over a 15-year straight-line period, as opposed
to the typical 39 years.
The Act extends the availability of this short depreciation period
to qualified leasehold improvement property and qualified restaurant
property that is placed in service through Dec. 31, 2009. The Act
also extends the 15-year depreciation period to “qualified retail
improvement property,” which is defined as an improvement to
an interior portion of nonresidential real property if the portion
is open to the general public and is used in the retail trade or business
of selling tangible personal property.
Wooden Practice Arrows Used By Children
Arrows sold after Oct. 3, 2008, are exempted from the excise tax when:
• They consist of all natural wood without laminations/enhancements
to increase spine.
• They are 5/16 of an inch or less in diameter.
• They are unsuited for use in a bow that draws 30 lbs or more.
National Disaster Tax Relief
Act, for the first time, provided prospective disaster tax relief
for any federally declared disaster area, which occurs between
Dec. 31, 2007, and Jan. 1, 2010. Farmers should bear in mind
each of the following tax relief provisions, which will be available
in a federally declared disaster area:
Increased Individual Casualty Loss. Current
law provides a casualty loss that is limited by a $100 per casualty
floor and a 10 percent of adjusted gross income floor for all
casualty loss deductions claimed. In federally declared disaster
areas, the 10 percent floor is waived entirely, but the $100
per casualty floor jumps to $500 per casualty.
Qualified Disaster Expenses. Typically, costs
that are incurred in cleanup and environmental remediation must
be capitalized. In federally declared disaster areas, these
costs may be deducted in the year incurred. Taxpayers should
note, though, that recapture provisions will apply to the amounts
deducted under this provision if the property is later disposed
Extension of NOL Carryback. Net operating losses
(NOLs) may be carried back up to two years under current law.
When NOLs are properly carried back, taxpayers are often eligible
for a refund from a prior year. In federally declared disaster
areas, the carryback period is extended to five years when the
NOLs are created by casualty losses and qualified disaster expenses.
Bonus Depreciation. Businesses may deduct a
full 50 percent of the cost of acquired property, real and personal,
in federally declared disaster areas, provided the property
is placed in service on or before Dec. 31, 2011, for personal
property and Dec. 31, 2012, for real property. These accelerated
depreciation deductions are exempt from the alternative minimum
tax but are subject to recapture provisions.
Increased Expensing. Current Code Section 179
provides that businesses may expense in the year of purchase
up to $250,000 of the cost of new tangible property or computer
software used in the trade or business. In federally declared
disaster areas, the expensing ceiling is increased by the lesser
of $100,000 or the cost of qualified Section 179 disaster property
acquired. Thus, a maximum of $350,000 of the cost of tangible
property or computer software may be deductible in the year
One-Year Extension For New Markets Tax Credit
Under the Act, the New Markets Tax Credit, which applies for qualified
equity investments to require stock in a community development entity
or CDE, i.e. any domestic corporation or partnership whose primary
purpose is serving or providing investment capital for low income
communities or low income persons and which maintains accountability
to residents of low income communities through representation on governing
or advisory boards of the CDE and is certified by the Treasury Department
as an eligible CDE.
The new Act extends the New Markets Tax Credit through 2009.
Accelerated Depreciation For Certain Farming Business Machinery
Machinery or equipment used in the farming business and the original
use of which commences with the taxpayer is eligible for an accelerated
five-year depreciation period. Accelerated depreciation is available
for pro-perty placed in service after 2008 and before 2010. Grain
bins, cotton ginning assets, fences and other land improvements are
not eligible for accelerated depreciation.
Qualified Tuition Deduction
The Act extends until Dec. 31, 2009, the above-the-line deduction
for tuition and related expenses paid to an institution of higher
education. The deduction is available for tuition paid for the taxpayer’s
education or a dependent’s for whom the taxpayer may claim a
David P. Webb and D. Nathan Smith are tax attorneys with Baker,
Donelson, Bearman, Caldwell & Berkowitz, PC in its Jackson, Miss.,