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Farmer Crop

With a near-record drought facing much of the United States this summer, there will be large payouts of crop insurance proceeds. But take note: there are special tax election strategies to consider for any crop insurance earnings you collect in 2012.

2012: A Year to Defer Crop Insurance Proceeds?

  • 8/6/2012

2012: A Year to Defer Crop Insurance Proceeds?

With a near-record drought facing much of the United States this summer, there will be large payouts of crop insurance proceeds. But take note: there are special tax election strategies to consider for any crop insurance earnings you collect in 2012.

“Normally, crop insurance proceeds are taxable in the year of receipt,” says Andy Biebl, a tax partner with CliftonLarsonAllen. “However, farmers can elect to defer the proceeds for one year if certain requirements are met.”

There are three major requirements to qualify for the deferral — but you must meet all three:

  • Farmers can defer crop insurance proceeds only if it is related to damage or destruction caused by drought, flood, or other major weather disaster. Insurance money related to revenue guarantees or low price protection cannot be deferred. If a claim includes both types, an allocation between claims is required.
  • A farmer intending to defer must also establish that the normal business practice is to report more than 50 percent of the current crop income in the subsequent tax year. The regulation, as interpreted by the courts, requires farmers to be able to establish that — with respect to the crop on which insurance is collected — a past history of more than half the proceeds normally being collected in the subsequent year.
  • Lastly, the crop insurance proceeds must be collected in the year of damage. If the damage occurred in 2012 but the proceeds are collected in 2013, deferral has occurred and no further election is permitted.

“Normally, a farmer would defer the insurance proceeds to 2013,” says Biebl. “However, with the potential for increased tax rates in 2013, the expiration of bonus depreciation, and the implementation of new taxes under the Affordable Care Act, this may be the year to pay income taxes at lower rates rather than defer income.”

How we can help

If you expect to have a major crop insurance claim for the 2012 crop year, it is extremely important to review this situation with your tax advisor. Even if you do not meet the deferral requirements, other strategies are available to effectively defer taxable income. Only by making a detailed income tax projection for 2012 and 2013 can the appropriate strategy be determined.


Andy Biebl, Tax Partner
andy.biebl@cliftonlarsonallen.com or 612-397-3121