One Big Beautiful Bill’s Impact on Northeast Agriculture: Business Tax Changes

President Trump signed the One Big Beautiful Bill (OBBB) into law over the July 4th holiday. The legislation, which passed the House on a 218-214 vote, generally extends, and in some cases amplifies, the 2017 Tax Cuts and Jobs Act for farmers. The bill also makes significant changes to agricultural safety net programs.

The 20% Qualified Business Income (QBI) deduction

The QBI deduction for pass-through entities is made permanent and includes a minimum $400 deduction for businesses with at least $1,000 of qualified business income. The legislation also expands the phase-in window for limitation purposes to $75,000 for single taxpayers, or$150,000 married filing jointly.

Section 179 increased

The section 179 expensing provision is increased to $2.5 million so long as eligible purchases don’t exceed $4 million.

Example: Farmer Joe purchases new equipment in 2025 for $3 million dollars. He can choose to depreciate the equipment over its normal 5-year life or choose to fully expense the $3 million in 2025. Fully expensing the equipment can generally make more sense when it is purchased out of cash flow as opposed to borrowing for it because as borrowed funds are paid back, there would be a lack of depreciation deduction to cover the non-deductible principal payments.

Planning Pointer: For New York State farmers, with the expansion of bonus depreciation back to 100%, it may make more sense to opt for bonus depreciation in order to optimize the 20% state investment tax credit.

Special Depreciation Allowance (SDA) reverts to 100%

Prior to the bill’s passage, SDA or bonus depreciation was slated to be at 40% for 2025. It is now back to 100% for purchases made after January 19, 2025 and made permanent. There is also a new provision that permits 100% expensing for certain nonresidential property that includes those used for agricultural and chemical production.

Planning Pointer: For producers that can take advantage of either section 179 or SDA, the determination may come down to state tax incentives as well as the composition of the assets acquired. For instance, with SDA that election is made on an asset class basis. In the previous example, Farmer Joe would have to take SDA on the entire $3 million, which may create too large of a deduction for him. On the other hand, with section 179, he may choose to only use it on $1 million of the equipment and depreciate the remaining $2 million over the normal 5-year life. Critically important for producers, such as those operating orchards and vineyards, this allows 100% expensing when trees are planted or grafted if chosen to do so.

Clean fuels production credit

The OBBB extended and modified the clean fuels production credit under I.R.C. 45Z through 2029. Beginning on January 1, 2026, the credit will only apply to fuels made from feedstocks produced or grown in the U.S., Canada or Mexico. There are also changes to the rate per gallon, prohibitions on negative emissions and preclusions of double dipping on credits. Notably, the bill notes that with respect to any transportation fuels derived from animal manure, there will be a distinct emissions rate based on the specific animal manure feedstock, which may include dairy, swine, poultry or any other sources as deemed appropriate.

Special farmland sales deferral

For taxpayers that sell farmland to eligible farmers, the bill allows capital gains to be paid over four annual installments. Qualified farmland is defined as real property that has either A) been used by the taxpayer as a farm or B) leased by the taxpayer to a qualified farmer, during substantially all of the 10-year period ending on the date of the sale and is subject to a covenant which prohibits the use of the property as anything other than a farm for a 10-year period.

Planning Pointer: For farmland that has been used for farming or leased to a qualified farmer, this provides an additional incentive for taxpayers to structure sales to qualified farmers looking to acquire land instead of delaying the sale for tax purposes.

Estate tax planning

Starting in 2026, the estate tax exemption is made permanent and increased to $15 million per taxpayer or $30 million for married couples.

Planning Pointer: Agricultural producers in the Northeast should review their balance sheets and entity documents to determine an appropriate fair market value of their assets, keeping in mind state estate taxes across the Northeast generally have lower thresholds that will apply to trigger state estate tax.

Extension and enhancement of Paid Family and Medical Leave Credit

The OBBB provides permanency for the paid medical leave credit under I.R.C. 45S. Under this provision, there is a tax credit for employers who provide paid family and medical leave to their employees. Eligible employers may claim the credit, which is equal to a percentage of wages they pay to qualifying employees while they’re on family and medical leave.

Reduced tax on overtime

There is a new deduction allowed for $12,500 ($25,000 for married filing jointly) on overtime so long as the eligible taxpayer’s modified adjusted gross income doesn’t exceed $150,000 ($300,000 married filing jointly). Qualified overtime is overtime paid as required under section 7 of the Fair Labor Standards Act (FLSA) of 1938 that is in excess of their regular rate.

Planning Pointer: The overtime compensation will be required to be reported on the taxpayer’s W-2 which will require businesses to ensure proper reporting. Note that under the FLSA, employees who are employed in agriculture as the term is defined in the Act, are exempt from overtime provisions.

Reduced tax on tips

For tax years 2025-2028 the OBBB provides taxpayers with the ability to deduct up to $25,000 of tips from their federal taxable income (not payroll taxes). The deduction begins to phase out once income exceeds $150,000. Within 90 days, the Treasury will publish a list of professions that qualify.

Business interest deduction enhanced

For producers with average annual gross receipts of $31 million or more for the previous three years, the calculation of interest deductibility is back to an Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) calculation. The EBITDA calculation is much more favorable than the current Earnings Before Interest and Taxes methodology.

Planning Pointer: Producers that are impacted by the limitations on business interest should begin taking a look at tax planning now utilizing the EBITDA approach. This is particularly important since the expanded expensing provisions of section 179 and SDA will likely spur additional capital expenditures.

Employee Retention Credit (ERC)

ERC claims filed after January 31, 2024, are disallowed regardless of their validity. Additionally, the statute of limitations to assess proper ERC claims has been extended. The 6-year period will run from the latter of A) the date the return was filed or B) treated as filed under the code or C) the date on which the claim for the credit or refund was made.

Qualified Small Business Stock (QSBS)

There has been a significant expansion to the exclusion under I.R.C. 1202 relating to the gain from the sale of QSBS. Notably, the required holding periods to be eligible have been shortened as well as now exclude the greater of $15 million of gain or 10 times the basis. The gross asset limit is also increased to $75 million, up from $50 million.

Planning Pointer: To be eligible for the exclusion, the producer must hold stock in a qualified trade or business. Notably, farming is an excluded activity that does not qualify. However, producers may have different businesses that may in fact be able to qualify for this provision with proper structuring.

Business meals for certain fishing vessels and fish processing facilities

Meals provided on certain fishing boats and fish processing facilities are not subject to the 50% expense limitation.

New Markets Tax Credit (NMTC)

The NMTC has been permanently extended. The NMTC permits taxpayers to receive a credit against their federal income taxes for making certain equity investments in qualified Community Development Entities (CDEs).

Qualified Opportunity Zones (QOZ)

QOZs are now made permanent. This program was created to spur investments into certain communities by offering tax incentives to investors who deferred their capital gains into QOZs. The bill increases these incentives for investments in newly created rural opportunity funds.

Research and development expensing

There is now the ability for the immediate expensing of domestic research costs that is made permanent.

Farm Credit East is uniquely positioned to help producers navigate and optimize the changes noted above. The good news with the OBBB, unlike previous legislation, is that it occurred mid-year and enables both producers and their advisors to plan accordingly to drive maximum value to the farm, fishing or forestry operation.