A panel of agricultural experts at the Ag Outlook Forum—Hosted by Agripulse’s Phil Brasher, Paul Neiffer (Farm CPA Report), Roger McEowen (Washburn University), and Harrison Pittman (National Agricultural Law Center)—discussed the significant, yet complex, provisions for agriculture contained in the recently passed “One Big Beautiful Bill” (OB3). The legislation introduces significant changes to commodity program payments, tax strategies, and farm financing, all while the industry faces ongoing financial pressure and trade uncertainty.
Commodity Program Rule Changes: Simplifying Farm Structure
The OB3 introduced a new structure designed to simplify farm operations and increase payment flexibility for multi-owner entities.
- Qualified Pass-Through Entity: The legislation creates a “new type of structure called qualified pass through entity” for LLCs, S-corps, general partnerships, and qualified joint ventures. This allows payment limits to be based on the number of people in the entity, rather than the entity itself.
- Impact on Liability: This is a “very good provision” because it allows multi-sibling or multi-partner operations to convert from a general partnership (with unlimited liability) to an LLC while retaining the ability to receive multiple payments.
- Simplification: Neiffer noted that for some operations, this could eliminate “six of those entities and bring it down to one,” simplifying the structure and eliminating unnecessary tax returns.
- Definition of Farm Income: The bill expands the definition of gross farm income used for qualifying for extra payment limits. Beginning next year, equipment gains, agritourism, and direct marketing of commodities will be automatically considered farm income. This resolves a prior struggle where CPAs and attorneys had difficulty classifying primarily farming clients as farmers because their non-cash income sources weren’t included.
Tax Provisions: Incentives and Depreciation Recapture Risk
The OB3 made the expiring provisions of the Tax Cuts and Jobs Act permanent and introduced significant changes to depreciation and real estate rules.
- Permanent Bonus Depreciation: Bonus depreciation is now permanent at 100%. This is a major incentive, as farmers are the only industry allowed to deduct 100% of every non-land asset purchase, including new buildings, in the first year.
- Increased Section 179: The immediate deduction under Section 179 was doubled, increasing the phase-out threshold to $4 million of qualified purchases in a tax year.
- The Recapture Risk: Roger McEowen warned that while accelerated depreciation offers a “big benefit on the front end,” it creates a risk of recapture if the asset is sold. By using 100% bonus depreciation, a farmer may have zero basis in the asset. If they sell it, the gain is re-characterized as ordinary income (rather than capital gains) and taxed at ordinary income rates. McEowen noted the only way to eliminate this recapture problem is the ultimate tax advice: “You could tell him to die, and that eliminates the recapture problem.”.
- Tax Deferral on Real Estate (Section 1062): This new provision allows a farmer selling farmland to another farmer (for continued farming use) to defer the net tax liability on the sale by spreading it equally over four years. Unlike an installment sale, the seller gets “all the money up front,” addressing a key cash flow issue.
- Restriction: The use of this provision requires a restrictive covenant on the deed, restricting the buyer from non-farming use for 10 years.
- New Tax Benefit for Lenders (Section 139L): Banks and insurance companies that make loans for farming purposes can exclude 25% of the interest income received on that loan. This provision is designed to “inject capital into the rural areas,” though one banker noted the resulting interest rate drop for farmers would only be about “25 basis points.”.
The Urgent Need for a “Bridge Payment”
The new commodity program benefits won’t be felt until next year, creating an immediate need for financial assistance to bridge the gap caused by the three-year decline in crop cash receipts.
- Payment Lag: The increased ARC and PLC payments are currently “scheduled to start going out October 1 of next year”. This lag is why the administration is actively working on a bridge payment.
- ARC/PLC “Put Option”: Paul Neiffer highlighted that farmers currently have a very good “put option” under the new effective reference prices. Since prices are projected to be low, a large payment is expected to offset the decrease. For example, wheat farmers are looking at a $1.35 payment per bushel because the effective reference price is $6.35 and the average price is projected at $5.00. The total payment under ARC/PLC could be “probably a 14 to $17 billion payment” next October.
- Funding the Bridge: Harrison Pittman noted that the Secretary of Agriculture has stated Congress will need to act to replenish the CCC (Commodity Credit Corporation) to fund any bridge payment. However, the President recently announced intentions to fund a bridge payment using Section 32 funding (tariff revenue).
- Legal Hurdle: Pittman noted that the use of Section 32 is complicated by the fact that the Supreme Court will hear arguments in November on whether the tariffs implemented under the International Emergency Economic Powers Act were unlawful. A ruling against the administration could result in the money having to be refunded.
Advice for Farmers
The experts offered consistent advice for farmers dealing with the current financial and policy complexity:
- Be Patient and Engage: Pittman advised farmers to “be patient” but “lean in into all of your organizations”. He emphasized the need for farmers and lenders to “lock arms, and they have to push real hard” through agribusiness and commodity groups.
- Plan with New Rules: Roger McEowen noted that the early passage of the tax bill allows farmers “to plan” and know “what the rules are going to be going forward”.
- Diversify: McEowen recommended that farmers try to “remain diversified,” noting that “when grains are down, livestock usually is high.” He cautioned that commodity programs tend to incentivize monoculture production, which farmers must battle.
- Scrutinize Deductions: Paul Neiffer encouraged farmers to monitor their tax planning, especially for deductions like soil nutrient depletion, which lacks clear IRS guidance and is currently the “wild wild west” in ag tax.
