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The Farm CPA

RSS By: Paul Neiffer, Top Producer

Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.

Crop Insurance Proceeds on Feed Consumed by Livestock

Feb 10, 2013

We received the following question(s) from a reader:

"My husband and I received crop insurance proceeds this year due to drought. It was for hay and pasture losses. The insurance company classifies the crop as "forage". If this was hay we would normally feed to our cows in the following year may we defer this income to 2013?"

As we have previously posted, crop insurance proceeds can be deferred if the normal practice is to receive more than 50% of crop proceeds in the following year. The reason for this provision to prevent a bunching up of income in one tax year due to receiving crop sales from the previous year plus the crop insurance proceeds. However, with the introduction of farm income averaging several years ago, this is not the problem that it used to be.

With regards to hay used to feed your cows, receiving crop insurance proceeds for this loss is not deferrable. The premise for denying this is that you are not bunching up income in one tax year. Rather, the crop insurance proceeds that a farmer is receiving is being used to purchase feed that is deductible and thus, the additional feed cost incurred during the year would offset the crop insurance proceeds.

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