Tax Pointers for Farmers and 

 Landowners in 1997 and 

 Planning Notes for 1998 



P. Geoffrey Allen 



Department of Resource Economics, University of Massachusetts 



Tax advice given below is intended as 

 general advice and is believed to be correct. It 

 does not substitute for a detailed review of the 

 circumstances of an individual taxpayer by a 

 professional tax practitioner. For more details, 

 you and your tax adviser may wish to consult 

 the sources referenced in the square brackets 

 [thus] (I.R. C. = Internal Revenue Code; Tres. 

 Reg. = Treasury Regulations). 



New Legislation 



The Taxpayer Relief Act of 1997 "TRA97" 

 (Public Law 105-34) is one of the longest and 

 most complex pieces of tax legislation passed by 

 Congress. It has been called "mind-numbing" 

 by members of the accounting profession. It 

 also contains errors and omissions, some of 

 which would have been fixed by the Technical 

 Corrections Bill, had it been passed before the 

 end of the 105"" session of Congress. Many 

 provisions become effective January 1, 1998, 

 although some, most notably those affecting 

 capital gains and sale of a principal residence, 

 take effect during 1997. Note that instructions 

 given in the Farmers' Tax Guide (Publication 

 225) on how to deal with capital gains and 

 losses are out of date (or are correct only for 

 sales of assets made before May 7, 1997). 

 Income averaging that was repealed in 1986 

 has been re-instituted in a limited way for farm 

 incomes only, starting in 1998. 



Self-employed Health Insurance 

 Deduction 



Under the tax act passed in 1996, self- 



employed individuals can deduct fi-om adjusted 

 gross income (on line 27 of Form 1040) 40% of 

 the amount paid in 1997 for health insurance 

 for their spouses and dependents. TRA97 

 increases the maximum deduction to 100% by 

 2007 and speeds up the rate of increase. The 

 part of the insurance premium not deducted is 

 allowed as a medical expense on schedule A, 

 though this will benefit very few people. [I.R.C. 

 § 16(a)(1)(B)] 



Long-term Care Insurance 



TRA97 applies the rules for the deduction of 

 health insurance expenses separately for 

 health plans that cover long-term care and for 

 those that do not. 



Example: an employed husband might have 

 employer-provided coverage that excluded 

 long-term care. His self-employed wife could 

 obtain long-term care insurance for both of 

 them and deduct from adjusted gross income 

 the same 40% of the insurance premium as 

 shown in the previous section. [I.R.C. § 162] 



Self employment Tax on 

 Rental Income 



If you rent farmland to another entity 

 (individual, partnership, corporation) you do 

 not pay SE tax on the rental income unless: 1 . 

 There is an arrangement that you will 

 materially participate in the production of 

 agricultural or horticultural commodities, and 

 2. You actually do materially participate in 

 production. The material participation rule 

 applies to land only. Rent of personal property 



Fruit Notes, Volume 62 (Number 3), Summer, 1997 



