Submitted by: agcomm,  Thu Dec 11 09:42:28 1997


                        December 11, 1997
 
Changes in 1997 Federal Tax Law will Affect Farmers
 
     Changes in federal income tax law concerning weather-related
livestock sales, deferring the tax on crop insurance proceeds,
calculating alternative minimum tax, figuring capital gains--and
a number of other matters--will affect many farmers as they file
their returns for 1997, according to Ron Haugen, farm economist
for the North Dakota State University Extension Service.
     Until this year, gains from additional animal sales could be
deferred only if drought caused the farmer to sell.  Now farmers
who have been forced to sell more animals than usual in 1997 due
to drought, flood or other weather-related conditions may be able
to wait until the next tax year to report the gain from selling
them.
     "The gain from the sale of the animals need not be reported
if the proceeds are used to purchase replacement livestock within
two years of the year of the sale," says Haugen.  "An election to
defer gain must be attached to the return in the year of the
sale.  Notification of the replacement must be attached to the
tax return for the replacement year." 
     Another change:  Congress has corrected the alternative
minimum tax problem for deferred-payment sales for farmers.  
Cash-basis farmers can now report income using the installment
method of sales for both regular income tax and alternative
minimum tax purposes.  This change is retroactive; farmers may
file an amended tax return to correct returns in any previous
year.
     "Also," says Haugen, "the new tax law provides capital gains
rate reductions for long- term gains.  Lower rates apply to
property held 18 months or more.  Cattle must still be held 24
months to be qualified for this capital gains treatment." 
     One change in the tax law may cause uncertainties for
farmers with Crop Revenue Coverage.  As was true previously,
farmers who file on a cash basis may defer paying tax on proceeds
they receive from crop insurance, so long as they show that they
normally would have sold those crops in the next tax year.  There
is some question as to what portion, if any, of CRC proceeds will
qualify for a deferral.  The problem arises because part of the
proceeds may be for a crop loss due to damage or destruction and
part may be for a market loss.  The Internal Revenue Service has
not yet addressed this question. 
     Other tax law changes that could affect farmers:
 * Beginning in 1998, farmers may elect to average their farm
     income over three years.           
 * The section 179 election-to-expense deduction has increased
     from $17,500 in 1996 to $18,000 in 1997.  It is scheduled to
     increase to $18,500 in 1998.  Farmers cans try to limit
     their tax liability by expensing business property under the
     179 expense deduction rather than depreciating it.  By
     expensing property in this manner, they are forgoing      
     the depreciation deduction benefit in future years.          
 * The deductible percentage for the self-employed health
     insurance deduction has increased to 40 percent for 1997, up
     from 30 percent in 1996.  The new law accelerates the rate
     of deductibility.  For 1998 the rate is 45 percent.  The
     rate increases to 100 percent by the year 2007.
 * Earned income credit amounts have increased for 1997, and it
     should be noted that cull livestock sales must be included
     when calculating the earned income credit.      
  For more information, Haugen advises consulting the Internal
Revenue Service at 1- 800-829-1040, or a tax professional.
                              ###
NDSU Agriculture Communication
Source: Ron Haugen (701) 231-8103
Editor: Barry Brissman (701) 231-7866