Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Friday 08/17/12

Tax Code Reprieve on Insurance Claims
The federal tax code offers mercy to those with huge crop insurance claims from the Great 2012 Drought. But don't take your option to defer proceeds from this year's claims for granted. With some disaster victims eyeing losses of $1,000 or more an acre, the dollar figures are so large--and the fog over future income tax rates so thick--your tax choices will be anything but normal this year.[Read Full Blog Post]
Posted at 6:27PM CDT 08/17/12 by Marcia Zarley Taylor | Post a Comment
Comments (3)
It is my understanding the portion of loss from yield reduction can be deferred to the next year. The revenue portion which at current prices will be be about $2.50 per bushel has to be reported this year. Marcia, has your tax people clarified this? Thank you, GC
Posted by Unknown at 8:45AM CDT 08/20/12
GC, that's how its always been explained to me as well.
Posted by Jarrod Bennett at 4:32PM CDT 08/20/12
Jarrod and GC, I asked CPA Andy Biebl for more clarification, as it appears that you and I might be mistaken. The situation is quite different than years like 2008 when there were payments largely because prices dropped. Here's his opinion: I think Revenue Protection crop insurance can be categorized in three ways: 1 No crop damage, only price protection payment: Cannot be deferred because the tax law requires a damage or destruction of crop. 2. Crop is damaged, and prices have increased for the particular crop: In that case, the entire payment must be because of damage, and it is all available for the deferral election. This is GENERALLY the case this year, but you can never say 100% because of all the types of crops out there and the possibility that some crop has had a price decline for which insurance kicks in. 3.Crop is damaged and prices have decreased: In this case, the insurance proceeds are a mix of yield loss from damage and price decline protection. In this case the yield loss component must be computed to segregate how much of the proceeds can be deferred. For the deferral election, there are the other requirements as well (over 50% of damaged crop normally sold in next year, insurance collected in year of damage in order to be deferred, etc.). Whatâ?™s probably confusing about last week's Taxman column is that the farmer received two payments, but it was all due to crop damage and loss of yield. None was due to price decrease. The ins. company paid him the spring price amount early, and will catch up the rest of the damage payment when the fall price is known. Hope this clarifies it. Just be careful of any generalizations this year, given all of the crops and the timing of policies (winter crops, etc.). Andy Biebl, CliftonLarsonAllen
Posted by Marcia Taylor at 6:11PM CDT 08/30/12
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