Republican leaders have reached a final agreement on the comprehensive tax reform package. Both the House and the Senate passed their bills this week, and the measure now awaits formal signature by President Trump. The final agreement sets the corporate tax rate at 21 percent and the top tax rate for individuals at 37 percent. Pass-through business entities that pay taxes through the individual side of the tax code would get a 20 percent deduction.

The primary issues of interest and impact to soybean farmers and how they are addressed in the final agreement are summarized below.

Pass-through rates/structure – the final agreement will reflect the Senate bill approach of pass-through entities paying at the appropriate individual rate with a 20 percent deduction. The vast majority of farms are structured as pass-through entities, such as sole proprietorships, partnerships and limited liability companies, whose owners pay taxes on profits through the individual code. These pass-through entities account for 85 percent of U.S. agricultural production, according to USDA data.

Interest deductions – the ability to deduct business interest was maintained for entities with gross receipts under $25 million.

Cash accounting – the ability for farm operations to use this accounting method was maintained.

Stepped-up basis was maintained.

Expensing/depreciation – businesses will be allowed full and immediate expensing of purchases with the benefit phasing out by 20 percent every year after 2022. The Section 179 expensing limits to $1 million (compared with $500,000 under current law) and the phase-out threshold is boosted to $2.5 million.

Estate tax – the exemption level is doubled from $5.49 million to $11 million for individuals, and $22 million for couples. The final agreement does not fully repeal the estate tax as the House bill proposed to do after six years.

Like-kind exchanges – are maintained but limited to property only (not equipment).

State, Local, and Property Tax Deductions – the agreement limits deductions for state, local and property taxes paid to a combined total of $10,000, however it retains the current law allowing farmers to deduct in full the property taxes on agricultural land in production.

Net Operating Losses - while the ability to carryback losses is repealed for general businesses, an exemption was provided for agriculture that allows farmers to carryback losses for two years.

The Domestic Production Activities Deduction (Section 199) that benefits cooperatives will be repealed but the agreement allows cooperative members to claim a new 20 percent deduction on payments from a farmer cooperative. Also, the cooperatives themselves could claim that deduction on gross income minus payments to members, with certain limitations. Leaders of the national farmer cooperative organizations have indicated this favorable treatment for gross income will help minimize the potential increase in the tax burden on farmer-owned cooperatives.

Another tax priority for ASA is an extension of the biodiesel tax credit, which expired on December 31, 2016. While the biodiesel tax credit and other expired temporary credits were not addressed in the comprehensive tax reform bill, there is an effort to have a separate tax extenders package included on another legislative vehicle that is passed before the end of 2017 or early in 2018. ASA is actively working to secure reinstatement of the biodiesel tax credit before the end of 2017. We will be providing updates as appropriate and urge state affiliates and members to continue advocacy efforts with your congressional delegation.

Throughout this process ASA has been actively engaged along with other agricultural groups to communicate the tax policy priorities for farmers. ASA Washington staff participated in numerous meetings with the White House, congressional staff, and our industry partners. As the process moves to final passage and enactment, ASA will communicate the final outcomes.