Approved megabill provides tax certainty for farmers

By Editor | July 23, 2025 |

By TAMMIE SLOUP

FarmWeek

Photo by Catrina Rawson of FarmWeek
The recently signed federal budget reconciliation bill includes key safety net and tax provisions that help farmers, but the legislation doesn’t replace a comprehensive five-year farm bill.

The recently signed federal budget reconciliation bill includes key safety net and tax provisions that help farmers, but the legislation doesn’t replace a comprehensive five-year farm bill.

President Donald Trump signed the nearly 900-page bill into law on July 4.

Hundreds of provisions are included in the legislation, including updates to key commodity risk management programs.

The funding for farm bill programs is good news for farmers, however, ag groups, including Illinois Farm Bureau, have stressed the inclusion does not replace a five-year farm bill. The ag industry continues to operate under the 2018 farm bill, which has been extended multiple times by Congress.

“This bill addresses key Illinois Farm Bureau priorities, including permanent tax provisions and updates to parts of the farm bill — both critically important to Illinois farm families who’ve been navigating a tough ag economy for several years,” IFB President Brian Duncan said. “There’s still work to be done. Several key items could not be included in the reconciliation budget bill due to the Senate rules. We will continue to work with our delegation in Washington to see these items are addressed in follow-up legislation.”

Hard lines were drawn between the two parties, specifically concerning cuts to Medicaid and an overhaul of the Supplemental Nutrition Assistance Program, which entails pushing some costs onto states for the first time.

Farm provisions

The bill includes enhancements to the farm safety net with up to $66 billion provided over 10 years.

These provisions include raising reference prices and commodity loan rates to better reflect today’s higher production costs and market conditions.

Crop insurance programs would see about $6.3 billion in increased spending over 10 years, with higher subsidies for some supplemental area-based plans and other improvements to premium support. Beginning farmers also will receive additional premium assistance. The bill also updates the federal crop insurance program to allow farmers to purchase the Supplemental Coverage Option (SCO) while enrolled in Agricultural Risk Coverage. Historically, SCO was available to only those enrolled in Price Loss Coverage, limiting coverage options.

Payment limits would increase from $125,000 to $155,000 for individuals, and then the payment limit would increase based on an inflation index. The bill also removes income caps for farmers or entities that draw 75% or more of their income from agriculture or forestry.

The bill also has provisions that would allow USDA to enroll up to 30 million new base acres for farmers based on the production history of that ground. Base acres were established in the 2002 farm bill and, up until the 2014 farm bill, mostly reflected planted acreage from 1998 to 2001.

In conservation, the bill takes back as much as $16 billion from the Inflation Reduction Act (IRA) and rolls those funds into the 10-year budgets for USDA’s main conservation programs.

Other provisions in agriculture would double funding for USDA trade promotion programs as well.

Many farm bill programs could not be included in reconciliation because they are policy, not budgetary. Those updates and extensions will have to be addressed in what many are dubbing a “skinny farm bill.”

Tax provisions

The 45Z credit was one of the few IRA incentives spared in the reconciliation bill, which terminates or phases out many of the IRA’s credits established under the Biden administration. The bill extends the 45Z, or clean fuel production credit, from 2027 to 2029 and prevents the use of foreign feedstocks outside of the U.S., Canada and Mexico. The emissions rate also will be adjusted as necessary to exclude any emissions attributed to indirect land use change.

However, the bill lowers the value of the tax credit for sustainable aviation fuels.

In relation to the 2017 Tax Cuts and Jobs Act (TCJA), farmers and rural businesses will continue to receive tax parity to their corporate counterparts through a permanent Section 199A deduction. The bill makes permanent a 20% deduction for qualified business income for smaller businesses. In addition to payment limitation increases, the bill creates new exemptions from the limitations to any qualified pass-through entities, including limited liability companies (LLCs), general partnerships, S corporations and partnerships.

For the nearly 98% of family farms that operate as sole proprietorships, partnerships or S corporations, USDA’s Economic Research Service estimates that 199A is the single-most impactful tax provision for farm businesses when evaluated separately from other TCJA provisions.

The legislation also reinstates 100% bonus depreciation from 2025-2030 and also increases the Section 179 deduction for smaller businesses to $2.5 million.

The bill increases the estate tax exemption to $15 million for single tax filers and $30 million for married couples starting in 2026 and the exemption would be indexed for inflation, preventing the Death Tax from hitting more than 2 million family farms that otherwise would have seen their exemption cut in half.

For individuals, the bill also increases the standard income deduction as well as the child tax credit for couples and exempts taxes on tips for people through 2028. For the state and local tax deduction, the bill caps itemized deductions for state and local taxes at $40,000 per household with an annual increase, then reverts to $10,000 in 2030. The current cap was set to expire next year.

This story was distributed through a cooperative project between Illinois Farm Bureau and the Illinois Press Association. For more food and farming news, visit FarmWeekNow.com.