While cattle producers didn’t get everything they wanted from federal tax reform signed last week by President Trump, they came close.
The bill does not fully and permanently repeal the estate tax, but it does double exemption rates to $11 million for individuals and $22 million for couples, both indexed for inflation.
Unfortunately, that provision was not made permanent and the exemptions will revert back to current levels in 2026, said Danielle Beck, National Cattlemen’s Beef Association director of government affairs.
But overall, the tax bill is a really good package for cattle producers, she said.
Cash accounting and expensing provisions are all being expanded, which is great for business owners and particularly great for agribusiness owners, she said.
NCBA was “very concerned” with the initial House bill that proposed restricting interest deductions to 30 percent of earnings before interest, taxes, depreciation and amortization, she said.
“That cap would have been very detrimental for highly leveraged agricultural entities. Particularly in the livestock sector, we’re looking at feeders,” she said.
Cattle feeders take on significant short-term debt to purchase cattle at the beginning of each finishing cycle and finance the purchase of feed and other input costs necessary for raising cattle, she said.
But an agreement in conference negotiations allows producers to continue deducting interest costs, she said.
The bill creates a small-business exclusion exempting entities with average annual gross receipts over a three-year period that do not exceed $25 million from the limit on interest deduction, she said.
By NCBA’s calculations, that exemption would generally apply to feedlots with less than 5,000 head capacity.
Operations with gross receipts in excess of $25 million can elect to deduct 100 percent of interest expense but in exchange for the exemption from the 30 percent cap, they’ll have to give up the 100 percent bonus depreciation allowed on all new farm assets, she said.
Overall, those provisions are a really good deal, she said.
Those with gross receipts under $25 million will be able to continue deducting interest expenses without having to make any sort of election, she said.
“And then for those out there who do have quite a bit of cash flow coming in and out of their business each year, they can still maintain the ability to deduct interest as a legitimate business expense,” she said.
The bill also increases the eligibility threshold for cash accounting from $5 million average gross receipts to $25 million.
“Cash accounting allows farmers and ranchers to improve cash flow by recognizing income when it is received and recording expenses when they are paid,” she said.
Accrual accounting could create a situation where they would have to pay taxes on income before receiving payment for sold commodities, she said.
The bill also raises the section 179 expense deduction from $500,000 to $1 million and is indexed to inflation. The deduction allows a producer to expense, with limitations, a capital purchase for business use instead of depreciating the item over time.
In addition, the $2 million threshold for the dollar-for-dollar phase-out of the deduction was raised to $2.5 million.