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.
Prevent Planting Qualifies as "Crop Insurance"
Jun 10, 2013
We got the following question from one of our readers:
"Are payments for prevented planting deferrable into the following year for income tax?"
Most farmers are aware that crop insurance proceeds can be defer to the following year if you meet the following basic qualifications:
- You use the cash method of accounting;
- You receive proceeds for damage to crops in the current year (if you receive the proceeds in the year following the crop damage, you cannot defer it); and
- You business practice is to normally sell more than 50% of your crop in the following year.
You need to meet all three of these requirements with certain nuances related to the last one. Additionly, the crop insurance proceeds needs to be for damage related to some type of weather event (drought, flood, hail, etc.). "Prevent Plant" insurance on the face of it might not meet this requirement since in order to have a crop, you must plant it. However, there is a provision in the Code that indicates proceeds related to prevented plantings qualifies as crop insurance for purposes of the deferral.
Therefore, as long as you meet the normal crop insurance requirements you can defer "Prevent Plant" proceeds.