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Virginia farmers who are under financial strain could face additional pressures as a result of the massive federal tax overhafll, predicts a Virginia Tech agricultural economist.
On the positive side, however, the reforms will discourage “farming” to take advantage of the tax code and reduce investment incentives in commodities which are already in surplus supply.
“One goal of the tax reform act is to discourage such outside investments,” explained Leon L. Geyer, Tech economist. “Agricultural investments are to be made on the basis of their economic return and not on their tax return.”
The tax compromise bill will eliminate many tax provisions heavily used by farmers, including tax investment tax credits, special treatment for capital gains, income averaging and rapid depreciation of real estate and equipment.
“Investment tax credits will be repealed as of last January 1,” Mr. Geyer said. “This means that any investments the farmer has made during the past year will not be eligible for investment tax credit.” A majority of the remaining provisions that have an impact upon the farmer will become effective January 1.
The tax bill will eliminate income averaging. In addition, the removal of favorable capital gains treatment for farm land will make the selling of land more expensive from a tax standpoint.
Farmers who are going out of business will also be affected by the new tax rules.
“If a farmer is in the process of selling out due to insolvency, he or she should look at the special rules on discharging indebtedness,” said Mr. Geyer. “There are some changes that will, in fact, lighten the burden on the farmer.”
Another major concern to farmers is the rapid depreciation rules. Mr. Geyer highlighted three major
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