New York Farmers and Refundable Investment Tax Credit

Along with other agricultural organizations, Farm Credit East advocated for inclusion of Governor Hochul’s Investment Tax Credit (ITC) in the recently enacted New York State budget. The state budget makes the ITC fully refundable for eligible farmers who derive more than two-thirds of their gross income from farming. This provision will be in place through 2027 and will greatly benefit eligible farmers in New York State. Today’s post provides a high-level overview of the ITC.

Eligibility Criteria

ITC is permitted on capital expenditures used on the farm for production purposes so long as the following criteria are met:

The useful life of the asset, for IRS purposes, is four years or more. Land is not eligible.
The property is used in farming production. Vehicles used on public roads and tenant housing, for example, generally don’t count.
The property was acquired by purchase from a non-related party as defined by the tax code. Inherited, gifted property, or property purchased from parents, for example, would not count.
The taxpayer did not utilize section 179 on the portion of the purchased asset that is also being claimed for ITC.

Example

In 2023, Joe Farmer purchased $100,000 of new farm equipment from the dealer.

$40,000 of equipment from his parents and $20,000 for a new pickup truck.

Joe is single and his only source of income is from his farming operation.

Joe decides not to utilize section 179 for tax planning purposes.

The equipment purchased from the dealer is eligible for ITC while the equipment purchased from his parents is not. Also, the pickup truck would not be eligible for ITC.

In this scenario, Joe Farmer is eligible for a $20,000 refundable ITC from New York State. On the other hand, had he used section 179 on the farm equipment purchased from the dealer, he would not be eligible for ITC.

If Joe Farmer had a $3,000 tax liability prior to the ITC, this $3,000 would be reduced by $3,000 of the original $20,000 ITC and the remaining $17,000 would be refundable to him. In 2024, because of the ITC refund, Joe will recognize an additional $17,000 in taxable income because of the ITC that was refunded to him.

As you can see from the example, there are important rules and considerations to keep in mind as it relates to ITC.

Your trusted team of Farm Credit East advisors have analyzed the new law and are ready to talk to you about what it means for your farm.

Tags: taxes, tax planning, expenses