Tax Reform and Health Care – What You Need to Know

-Kristen Murray,  Financial Services Specialist

Based on several recent conversations with both members and non-members, it is my impression that most individuals are unclear as to whether or not they will be subject to the shared responsibility payment in 2017 and subsequent years. There are many areas of the Tax Reform and Jobs Act (TRJA) that are not explicit, the Affordable Care Act (ACA) is not one of them. Here is what you need to know.

2017 tax year – The ACA remains in effect and all individuals must indicate, whether they had minimum essential coverage, qualified for an exemption from the coverage requirement or will make a shared responsibility payment (IRS.gov). If subject to the “penalty”, the calculated payment will be due with the tax return. If taxpayers omit this information, electronically filed returns will be rejected and paper filed returns suspended. In short, you can no longer file without disclosing this information and taxpayers are obligated to follow the law as written in 2010.

2018 tax year – Contrary to popular opinion, for 2018 the ACA remains in effect. Taxpayers will still need to account for the ACA shared responsibility payment when making health care decisions in 2018. Filing requirements will remain the same as the preceding tax year.

2019 tax year and beyond – This is when it happens folks; there is no longer a shared responsibility payment (penalty) for failure to obtain minimum essential health coverage. The ACA remains in effect, but the penalty now calculates as $0.00, rendering it null and void.

Please email FinancialServices@yankeefarmcredit to learn more.

Tax Reform and Depreciation – "A Balancing Act"

-An update on current tax reform from our Financial Services Department

The Tax Cuts and Jobs Act (TCJA) modified several categories of depreciation. What follows is a list of the most significant changes. While the act provides taxpayers increased latitude in regards to depreciation and direct expensing (writing off a current year equipment/machinery purchase i.e. tractor), it requires that taxpayers recognize gain/income when trading certain previously depreciated property (“pay back” depreciation previously taken on the traded equipment/machinery). The TCJA giveth and it taketh away.

Like-Kind Exchanges – Historically, the exchange of depreciable real and personal property of a like-kind class did not result in recognition of gain or loss provided both pieces of property were “held for use in a trade or business”. The TCJA limits like-kind exchanges to real property and as such, exchanges of personal property (machinery etc.) no longer qualify for non-recognition of gain or loss. Essentially, trade-ins of equipment and other personal property will be treated as sales and result in a taxable event.

Cars and Listed Property – Passenger automobile depreciation limits have increased significantly and may be increased further through the use of bonus depreciation. Computers are no longer required to be treated as listed property and as a result no longer subject to the listed property rules that may limit depreciation benefits.

(MACRS) Modified Accelerated Cost Recovery System – The MACRS recovery period for farm machinery and equipment has changed from 7-years to 5-years (excluding grain bins, fencing, or other land improvement) and the 200% depreciation method of MACRS made available when previously farmers had been limited to the 150% MACRS method.

Bonus Depreciation – Bonus depreciation has increased from 50% to 100% (“full expensing”) and has been expanded to include both new and used property of qualifying recovery periods. A word of caution, many states do not recognize (disallow) bonus depreciation and excessive use of such a tool may result in unexpected state tax liabilities.

Section 179 Expensing – Pre-inflation adjustments for Section 179 limits have been increased to $1 million on expensing and the phase-down threshold increased to $2.5 million annually.

For more details and any questions or concerns, please contact us at:

FinancialServices@yankeefarmcredit.com or visit yankeefarmcredit.com