How Expiring TCJA Provisions Will Impact Farmers

The Tax Cuts and Jobs Act of 2017 (TCJA), effective January 1, 2018, brought about several beneficial changes for farmers, including reduced tax rates, potential qualified business income (QBI) deductions, temporary expansion of bonus depreciation to 100%, increase in the estate tax deduction, and other relevant tax provisions.

Many of these provisions will expire on December 31, 2025, if Congress does not take action to extend them. Here, we will explain which expiring TCJA provisions farmers need to know.

Key Expiring Provisions and Their Impact on Farmers

Individual Income Tax Rates

If the TCJA is allowed to expire at the end of 2025, farmers will see their marginal tax rates revert to a maximum of 39.6%. This increase could potentially have a significant negative impact on farmers across the country.

Standard Deduction

For those farmers who can’t take advantage of itemizing their deductions and instead utilize the standard deduction, they will notice a significant change. If the standard deduction increase is allowed to expire, it would revert to pre-TCJA amounts. For farmers filing “married filing jointly,” they would see their standard deduction in 2026 drop from $29,200 to $16,700. That is a reduction of $12,500.

Qualified Business Income (QBI) Deduction (Section 199A)

The QBI deduction under IRC Section 199A will also expire after December 31, 2025. This is a hefty 20% reduction in qualified business income that many farmers are currently able to deduct.

Bonus Depreciation and Section 179 Expensing

Bonus Depreciation

TJCA allowed farmers to take advantage of 100% bonus depreciation, which allowed them to deduct the full cost of “eligible assets” in the year they are placed in service.

However, TCJA was structured so that starting in 2023, the bonus depreciation phase-out began with the first 20% reduction, taking bonus depreciation from 100% of eligible costs down to 80%. Subsequent years after 2023 continue to have 20% reductions until it is completely phased out in 2027. As you can see, this gradual decline in allowable bonus depreciation over the years will likely impact farmers’ decisions on various items, including investments in new farm equipment.

Section 179

Prior to TCJA, the Section 179 expensing limitations were $500,000, with a phaseout threshold of $2 million. During TCJA, the limit was increased to $1 million, with a phaseout threshold of $2.5 million (adjusted for inflation). If TCJA expires, the Section 179 expensing limitations will revert to pre-TCJA amounts.

Estate Tax Exemption

Prior to the TCJA, the lifetime estate tax exemption was $5.49 million per individual. After the enactment of the TCJA on January 1, 2018, the exemption more than doubled to $11.18 million per person. If left to expire, the exemption would revert to pre-TCJA levels (with likely adjustments for inflation). Farmers should consider how this reduction could impact farm families, the transfer of agricultural land to the next generation, and succession planning.

Other Relevant Provisions

This article is not an all-inclusive list of items that impact the agriculture industry; instead, it is meant to generate conversation among farmers about how the expiration of the TCJA could impact their farming operations. Everyone has a unique tax situation.

Example: Comparing the TJCA 2025 Tax Year to the Post-TJCA Expiration 2026 Tax Year

With the areas discussed above, let’s turn to an example to show how these expiring tax provisions could potentially result in a significant increase in taxes for farmers.

Current Tax Situation Under TCJA (2025)

• Tax Brackets: For married filing jointly, the tax brackets are:
  • 10% on income up to $23,850
  • 12% on income from $23,851 to $96,950
  • 22% on income from $96,951 to $206,700 
• Standard Deduction: $29,200 
• Qualified Business Income Deduction: 20% deduction on qualified business income

Post-TCJA Expiration (2026)

• Tax Brackets: Revert to pre-TCJA rates:
  • 10% on income up to $19,050
  • 15% on income from $19,051 to $77,400
  • 25% on income from $77,401 to $156,150 
• Standard Deduction: Reduced to $16,700 
• Qualified Business Income Deduction: Eliminated

Example Calculation

Under TCJA (2025)

• Income: $100,000
• Standard Deduction: $29,200
• Taxable Income: $70,800
• Qualified Business Income Deduction: $20,000 (20% of $100,000)
• Adjusted Taxable Income: $50,800
• Tax Calculation:
• 10% on first $23,850: $2,385
• 12% on next $26,950: $3,234
• Total Tax: $5,619

Post-TCJA Expiration (2026)

• Income: $100,000
• Standard Deduction: $16,700
• Taxable Income: $83,300
• Qualified Business Income Deduction: $0
• Tax Calculation:
• 10% on first $19,050: $1,905
• 15% on next $58,350: $8,752.50
• 25% on remaining $5,900: $1,475
• Total Tax: $12,132.50

If the TCJA expires, the farmer's tax liability would increase from $5,619 to $12,132.50, resulting in an additional tax burden of $6,513.50 

This example highlights the significant impact of the TCJA expiration on tax rates and deductions for married couples filing jointly. 

Tax Planning Strategies for Farmers

While no one can predict the future and whether TCJA favorable tax provisions will be extended, there are strategies that farmers can implement to put themselves in a better position if these tax provisions do expire.

These strategies may include:

• Reviewing current tax plans
• Working with tax professionals
• Considering different business structures
• Adjusting investment strategies
• Exploring estate planning options

Conclusion

The TCJA brought significant benefits to farmers, including lower tax rates, increased estate tax exemptions, and valuable deductions like the Qualified Business Income Deduction. However, with many of these provisions set to expire in 2025, farmers could face substantial increases in their tax liabilities.