The Farm CPA
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.
Will Crop Insurance Proceeds Be Deferrable This Year?
Jul 22, 2013
We have had a couple of posts on prevent plant crop insurance proceeds being deferrable into 2014, however, what happens if there are crop insurance proceeds at harvest time. Most likely, all or almost all of these proceeds will be related to a drop in price. For example, the Corn Spring price was $5.65. If the harvest price ends up around $4 most crop insurance proceeds will be directly related to the drop in price, not related to damage to crops. For corn prices to get this low, there would need to be a bumper crop (all farmer's crop production are different, so part of it might be related to yield loss).
The income tax laws allow you to defer crop insurance proceeds related to yield loss, but not price loss. Therefore, if a farmer receives crop insurance proceeds this year and their yield is greater than their APH, then most likely all of the crop insurance proceeds received in 2013 will be subject to tax this year and not deferrable till 2014. If their yield is lower than their APH and the harvest price is lower than the spring price, then part of the proceeds will be deferrable.
If the farmer deferred a large amount of crop insurance proceeds from 2012 into 2013 and has crop insurance proceeds in 2013 that they cannot defer, you may want to work with your crop insurance company to have them delay paying the proceeds until 2014.
It is a little early to be thinking about crop insurance proceeds while we are just getting started with pollination, but as we get closer to harvest, you need to be planning on when you want to report these proceeds, if any.
Therefore, the bottom line for 2013 is:
- Prevent Plant Proceeds - Are deferrable if you meet the normal rules for deferring crop insurance proceeds
- Proceeds related to the drop in price from Spring to Harvest - Not deferrable
- Proceeds related to yield loss - Deferrable