Source: POLITICO'S MORNING AGRICULTURE, 8/9/18

Regulations proposed by the Treasury Department and IRS on Wednesday detail a new 20 percent deduction for so-called pass-through entities, which was created by the tax law enacted earlier this year, H.R. 1 (115). It comes with some favorable terms for the many farms and ranches structured as pass-throughs — such as partnerships, limited liability companies or sole proprietorships — according to several tax consultants and accountants.

Businesses made up of more than one entity can be aggregated to claim the new deduction as long as they have common ownership, and rental income will qualify. Many producers place their agricultural land in a separate entity from the farm itself for several reasons, such as liability protection and succession planning. A senior Treasury official said allowing aggregation is meant to keep single businesses from reorganizing and to ensure pass-throughs are subject to an effective tax rate nearly as low as corporations, which had their rate cut to 21 percent, reports Pro Tax's Aaron Lorenzo.

However, it appears that cash rent or crop-share landlords will not qualify for the new deduction, known as Section 199A, said Veronica Nigh, an economist at the American Farm Bureau Federation. "We do have a lot of absentee landowners out there. They hold on to family farmland, even though they're not living there, and rent it to someone else," she said. "In that case, the income wouldn't rise to the level of trades or business. That's the threshold."

Dairy assets: Dairy farmers who sell cows may not be able to count that source of income toward the new deduction, said Dario Arezzo, a senior tax consultant at Farm Credit East. This may be because cows are treated as an asset subject to capital gains taxation, which tends to be a more favorable rate. "That's why I think [Treasury and IRS] excluded those assets from the new deduction. They are already getting a favorable tax rate," he said.