OBBB farm-related tax changes
This summer, the One Big Beautiful Bill Act (OBBB) was signed into law. Dario Arezzo, chief financial services officer for Farm Credit East, presented information on what OBBB holds for agricultural taxes.
Arezzo stated there’s nothing new regarding the Qualified Business Income deduction (QBI). “This has been made permanent and there are no changes for farmers,” he said. “This is a 20% deduction for farmers.”
A new provision in the bill is the ability for qualified farmers (a qualified seller of farmland selling to a qualified farmer) to spread taxes out over four years. For a $4 million land sale with $750,000 due on April 15, 2027, the options are to pay all the tax up front or spread the tax over four years. In this example, the present value savings would be $58,431.
“This would mitigate the lock-in effect,” said Arezzo. “Typically, folks may hold land for a long time because they don’t want to pay the tax associated with selling the land. I believe this would ease those concerns. An important thing to point out is that you can only defer the tax on the farmland sale.”
“Qualified farmland” is farmland that’s been used by the taxpayer as a farm for farming purposes or the land is leased to a qualified farmer that’s been farming on the land for most of a 10-year period. The land must be used continually for farming for 10 years under a covenant or other restriction.
The definition is included in the Food Security Improvements Act of 1986 and has ties to crop insurance provisions.
There’s good news for estate planning: Beginning in 2026, the estate tax will be permanent for higher thresholds ($15 million or $30 million per couple). It’s important to be aware of state estate considerations and to maintain estate and succession planning with a tax professional because there may still be a substantial tax at the state level.
There are also different state considerations regarding “portability,” a tax provision that allows a surviving spouse to add the unused portion of their deceased spouse’s federal estate and gift tax exemption to their own.
“In New York State, that isn’t allowed,” said Arezzo. “Planning is still involved but we can rest a bit easier with the higher $15 million per person amount. Thinking about estate planning being closely aligned with income tax planning remains a critical point of consideration for producers.”
For overtime, there’s reduced tax, not elimination of tax. Arezzo explained it’s a reduced tax of up to $25,000 on overtime for those married and filing jointly. There are income limitation thresholds: $150,000 for singles or $300,000 for those married filing jointly. This reduction will be in place for the next few years. There will be reporting requirements to ensure the information is accounted for properly on W2s. Most importantly, the overtime must be required overtime under the Fair Labor Standards Act.
“A lot of industries, including agriculture, aren’t subject to overtime,” said Arezzo. “A person may not be eligible for reduced tax on overtime.”
There is no Social Security tax elimination, but for the next several years, there’s a $6,000 deduction for tax filers 65 and older. This is an important deduction for farmers, particularly during annual tax planning.
“Depreciation was a big win for farmers in the bill,” said Arezzo. “The IRS characterizes property by class life. Most property is typically three to 15 years. That’s basically everything but general-purpose barns, which are typically a 20-year property. Deduction limits have been greatly enhanced. Now it’s a $2 million limit and up to $4 million of investment in qualified property.”
Bonus depreciation is allowed for all properties including general purpose barns. This deduction can be used up to 100%. With the depreciation change comes a transitional rule that can be elected this year. For bonus depreciation, Jan. 19 is the start date, so purchases made between Jan. 1 and 18, 2025 are not considered for the bonus. The special depreciation includes orchard plantings or graftings for the year those are planted rather than the year plantings are commercially viable.
A new section for bonus depreciation includes manufacturing production facilities. “Typically, if you have a commercial building, those are 39-year asset classes,” said Arezzo, noting that they’re expensed over 39 years. “The new category allows for 100% depreciation for qualified production facilities, including manufacturing.”
The child tax credit has been enhanced, although there are income limitations. The enhanced child tax credit is $2,200/child for children under age 17. The mortgage interest deduction is up to $750,000 and is now permanent.
Starting in 2026, with the purchase of certain passenger vehicles, purchasers can deduct up to $10,000 of interest paid on a personal car loan. This is a new deduction that will be available from 2025 through 2028 and applies to interest paid on a new vehicle purchased on or after Jan. 1, 2025. It applies only to new passenger vehicles under 14,000 lbs., and final assembly of the vehicle must occur in the U.S. Credits for several categories, including electric vehicles and energy efficient home improvements, will expire.
The State and Local Tax (SALT) deduction allows certain taxpayers to deduct these taxes from their federal taxable income. Arezzo emphasized the importance of farmers understanding individual circumstances around the enhanced SALT deduction and how those circumstances can affect the farm business regarding state tax decisions.
Those who welcome a baby between 2025 and 2028 will receive $1,000 “seed money” in a special account. Arezzo views this as a non-deductible traditional IRA for those under 18, to which parents can contribute $5,000/year without the child having earned income.
As the 2025 tax preparation season begins, tax filers should contact their tax preparer and other farm financial partners, including lenders and business advisors, to ensure all involved are aware of the possible benefits from the changes.
by Sally Colby
