Here are several items to note for tax planning:

• Ag producers are allowed to use 200% declining balance depreciation for 3-year, 5-year, 7-year and 10-year property. A 150% declining balance is required for 15-year and 20-year property.
• For most new ag machinery and equipment (except grain bins) the recovery period is five years.
• The Section 179 expense has increased. It generally allows producers to deduct up to $1,220,000 on new or used machinery or equipment purchased in the tax year. There is a dollar-for-dollar phase-out for purchases in excess of $3,050,000. Equipment must be above 50% business use to use Section 179.
• The additional 100% first-year bonus depreciation has been phased down to 60% for the 2024 tax year. It is available for used as well as new property. It is equal to 60% of the adjusted basis after any Section 179 expensing. This provision is scheduled to phase out over time. For 2025 it is scheduled to phase down to 40%.
• Net operating loss (NOL) carryback rules are in effect. Producers can carry back losses to offset income.
• Like-kind exchanges are not allowed for personal property but are allowed for real property.
• Income averaging can be used by producers to spread the tax liability to lower income tax brackets in the three previous years. This is done on Schedule J.
• Producers may also use Form ND-1 FA (income averaging) for North Dakota income tax calculations.

Other tax planning items to note:

• Crop insurance proceeds can be deferred to the next tax year if a producer is a cash-basis taxpayer and can show that normally income from damaged crops would be included in a tax year following the year of the damage. This would include prevented planting insurance payments.
• A livestock income deferral is available for those who had a forced sale of livestock because of a weather-related disaster. This is a very important consideration for producers who had to sell livestock because of drought. The IRS has two provisions for deferral. The first one is IRC 1033(e) in which a livestock producer who sells more draft, breeding or dairy animals than normal due to weather-related conditions may defer recognition of the gains for up to two years. A disaster declaration is not necessary, but if there is a federal disaster declaration, the replacement period is four years. The second provision is IRC 451(g) in which a livestock producer that uses the cash method of accounting can elect to defer for one tax year the income of any qualified livestock sold due to weather-related conditions.
• Prepay farm expenses. Feed, fertilizer, seed and similar expenses can be prepaid. Typically, discounts are received by paying for these expenses in the fall. Producers can deduct prepaid expenses that do not exceed 50% of their other deductible farm expenses.
• Defer income to 2025. Crop and livestock sales can be deferred to the next year by using a deferred payment contract. Most grain elevators or livestock sale barns will defer sales until the next tax year. Producers should be aware that they are at risk if the business becomes insolvent before the check is received and cashed.
• Purchase machinery or equipment. Machinery or equipment purchases can be made before the end of the year to get a depreciation or Section 179 expense deduction in 2024.
• Contribute to a retirement plan such as a simplified employee pension plan, savings incentive match plan for employees or individual retirement account.

Information on ag topics can be found in the Farmers Tax Guide, Publication 225. It can be obtained at any IRS office or ordered by calling 800-829-3676.

Additional questions on this topic should be addressed to your tax professional or the IRS at 800-829-1040. North Dakota income tax questions can be addressed to the North Dakota Tax Department at 877-328-7088.

Editor’s note: Kelli Anderson is an information specialist for Ag Communications at North Dakota State University, which provided this article.

Angus Beef Bulletin EXTRA, Vol. 16, No. 12-A