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New ag income tax update for farm families now available

ST. PAUL -- For tax years 2008 and 2009, there are a number of changes affecting farm families.

Changes resulted from the passage of federal tax laws, including the Small Business Work Opportunity Act of 2007 and the Economic Stimulus Act of 2008. These include changes in Kiddie tax rules, Section 179 allowance, reinstatement of bonus depreciation, tax rebates and taxation of CRP payments. Here are a few details:

Passage of the Small Business and Work Opportunity Act of 2007 extended the Kiddie tax rules to include most children age 18 and many full-time students ages 19 through 23 for tax years beginning after May 25, 2007. If a child's net unearned income exceeds $1,800 for 2008, the unearned income above the threshold is taxed at the parent's marginal tax rate if the parent's marginal tax rate is higher than the child's.

Depreciation rules continue to change. For Section 179 depreciation for tax year 2008, the deduction limit is $250,000 and the phase-out amount is $800,000.

Qualifying property for Section 179 includes breeding livestock, machinery, single purpose ag structures (such as a hog confinement building) and drainage tile.

Taxation of CRP payments has been an ongoing issue. The issue is whether or not the CRP payment is subject to Self-Employment (SE) tax. Recent Farm Bill legislation states that CRP payments made to individuals receiving Social Security retirement, survivor or disability payments are not subject to SE tax. Any other individuals receiving CRP payments would be subject to SE tax on those payments.

Income averaging has been reinstated for farmers only. Farmers can elect an amount of their current farm income to divide equally among the previous three years.

Any crop insurance proceeds you receive need to be included as income on your tax return. You generally include that income in the year received. Crop insurance includes the crop disaster payments received from the federal government as the result of destruction or damage to crops, or the inability to plant crops because of drought, flood or any other natural disaster.

For questions specific to your farm business or individual situation, be sure to consult with your tax preparer. This article is offered as educational information only and not intended to be legal or financial advice.

For a detailed version of this article, see the Center for Farm Financial Management's website at and click on "publications."