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Tax Risks From Planting Flooded Farmland

12:00PM Jul 04, 2014
prevent plant minnesota crop tour

The following information is from Gary A. Hachfeld, an agricultural business management educator with University of Minnesota Extension. National information about prevented planting is available on USDA's Risk Management Agency website.

Torrential spring rains and the flooding that followed has caused many problems for Minnesota farmers. They are faced with many decisions not the least of which are related to their choices regarding what to do about crop insurance. The decisions can have huge financial impacts on the farmer’s profit for the year. Final planting dates have passed for most Minnesota crops so the question is what do we do with the land that was flooded but may be available to plant in a few days?

Power Hour Noon LogoAlthough there are choices, federal crop insurance rules are very specific as to what the farmer can do regarding prevented planting. Choices range from planting the insured crop within the late planting period to planting a cover crop with restrictions to leaving the ground unplanted. With many of the choices there is an indemnity payment reduction based upon the farmer’s situation.

Wet Summer Ahead

If that were not enough, the Internal Revenue Service rules dictate how a farmer is taxed on the crop insurance indemnity payments and whether or not the farmer can defer a portion of the payment. Any crop insurance proceeds are included in taxable income. Current rules dictate that only the portion of an indemnity payment for destruction or damage, that is yield loss, is eligible for deferral to next year’s income. The farmer must determine the portion of payment that is due to crop destruction or damage verses losses due to reduced market price.

There is available, at no cost, a University of Minnesota Extension information sheet that outlines many of the rules and guidelines for federal crop insurance related to prevented planting as well as the tax treatment of indemnity payments. For those who have Internet access, simply click here. For those without Internet access, contact your local county Extension office or the Farm Information Line by phoning 1-800-232-9077.

Before making a final decision about crop insurance or the tax treatment of an indemnity payment, farmers are urged to meet with their crop insurance agent and tax preparer for information specific to their situation.

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