USDA Doubles Down on Equipment Gains

We had a feeling when we saw that ERP has already issued at least $6.4 billion of payments that USDA might not give us the result we wanted on equipment gains and that is the reality.

USDA just released updated guidance on the definitions of farm adjusted gross income (AGI).  The bottom line is that farmers needs to have at least 66.66% of farm AGI to total AGI before they can include equipment gains.  This will prevent many farmers from qualifying for increased payments.

Also, doing custom farming or harvesting services likely will have the same rule apply including providing seed to farmers.  Many farmers sell seed as a sideline and AGI from providing these services will need to meet the same test.  However, since this is AGI and not gross receipts, farmers can properly allocate expenses against this seed income to arrive at the correct amount of AGI.

The guidance also provides for situations where the entity may not be in existence for all three years.  In those cases you can use AGI from predecessor entities.  And it finally clarified that you use loss years in your AGI calculations.  Several tax advisors thought loss years could be ignored and that is not the case.

Finally, the FSA indicated that AGI is calculated assuming the taxpayer filed a separate tax return for married couples. This generally helps farmers qualify for increased payments.

No changes were made regarding farmers with losses.  In that case, as long as negative farm AGI is greater than total negative AGI by at least 75%, then the farmer qualifies.

Bottom line is that we did not get what we wanted on the equipment gain definition but the new Farm Bill could make changes to these definitions and the changes could be retroactive.