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Ep. 91 Unpacking the One Big Beautiful Bill with Steve Hamilton

Main Topics Covered

  • The "One Big Beautiful Bill" (HR 1):
    • Overview: Approximately 869 pages, divided into permanence, promises, and programs.
    • Tax Cuts and Jobs Act of 2017 provisions made permanent, with enhancements.
    • Impact on agriculture: Includes many provisions typically in the farm bill.
  • Key Agricultural Provisions:
    • Reauthorization of farm bill's non-discretionary spending through 2031.
    • Budgetary changes: Over $65.6 billion, with $59 billion for commodity support programs.
    • Updates to agricultural risk coverage, price loss coverage, and crop insurance.
    • New provisions for base acres and beginning farmers.
  • Financial and Tax Implications:
    • Trade promotion and clean fuel production credits.
    • Expanded price guarantees for major commodities.
    • Livestock indemnity program updates.
    • Tax provisions: Small business stock gain exclusion, pass-through entity benefits, and bonus depreciation.
    • Estate tax exemption changes: Unified credit exemption made permanent, increased to $15 million in 2026.
  • Farm Transition Planning:
    • Importance of planning beyond tax considerations.
    • Encouragement to work with Land as Your Legacy advisors for effective transition planning.

 

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Transcription

Speaker 1 (00:08):Welcome to AgCredit Said It, your go-to podcast for insights on farm finance and maximizing your return on investment. Join us as we talk to industry leaders, financial experts, and area farmers, bringing you skillful advice and strategies to grow your farm's financial future ag credit setting where farm finance goes beyond the balance sheet.

Libby Wixtead (00:38):Welcome to another episode of AgCredit Said It where we take you beyond the balance sheet. Libby here today and we will be digging into policy that was passed earlier this summer, which was the one big beautiful bill. Today I'm lucky to have Steve Hamilton with me from Nationwide to walk us through why this bill is important to you. Welcome Steve.

Steve Hamilton (01:01):Thank you, Libby. Appreciate the opportunity to speak with you.

Libby Wixtead (01:04):Yeah. Could you start off with introducing yourself and your role at Nationwide and especially in relation to the agricultural policy and advocacy?

Steve Hamilton (01:12):Yes. I'm a technical director with Nationwide's Advanced Consulting Group and my degrees and designations include Juris doctorate, chartered life underwriter, chartered financial consultant. I practice law briefly in the state of Iowa and have been in financial services now for well over 30 years. I grew up on a farm in central Iowa and still have an ownership interest in that third generation farm and we're actually planning now for the fourth generation. So I am impacted by a number of the things that farmers are and have seen how property properly arranged transition planning can actually work and on the other side how things can not work and end up disastrous. So in my current role now with Nationwide, I specialize in farm transition estate planning, IRA and annuity distribution options, and I was actually involved with helping nationwide develop our Land of Legacy program and I continue that involvement by reviewing many of the land of legacy cases that we prepare. And I've also developed many of the egg related materials that are used as well as speaking to groups about ag related topics, primarily dealing with transition planning and taxation.

Libby Wixtead (02:23):Well Steve, I know I can say we have several customers who are very thankful with your services as land is your legacy to really help their family farms stay as generational farms and move on to the next level. So we are very thankful for your role in that part of nationwide. Getting back to the one big beautiful bill for our listeners who are unfamiliar with it, why is that significant for agriculture?

Steve Hamilton (02:50):The one big beautiful bill as it's been referred to or it's actually HR one is approximately 869 pages. Now that sounds like a lot, but they've been passing bills well over a thousand pages it seems like lately. And it can be broken down really into three primary sections, at least according to my analysis. It's the permanence promises and programs. So most of, if not all of the tax Cuts and Jobs Act of 2017 have been made permanent. Some of those provisions have actually been enhanced in some ways. A number of President Trump's campaign promises were included in the bill and a number of federal programs were also impacted by the bill and that includes agriculture. But some of the things that your listeners may be impacted by, even though it's not specific to agriculture or some of these promises that are in this bill that President Trump tried to keep in many ways.

(03:44):And so we've heard of probably the no tax and overtime, no tax on auto loan interest for American made vehicles, no tax on social security, which is called the senior deduction. And Trump accounts where children born between 25 and twenty eight, twenty twenty eight can get a $1,000 contribution from the US government. That basically goes into an IRA form that's a generalization of that, and no deductions on tips as well. So all of these things basically go from 2025 to 2028, which kind of fits politically I guess with the election cycles, what's going on. All of 'em have certain thresholds as well. So they're out there. They may be relevant to some of your listeners and obviously they'll want to take advantage of those things if possible, but agriculture was a significant impact was significantly impacted by the bill. In fact, many provisions that are typically included what we call the farm bill in this bill. So in many ways I look at this as it really is a farm bill. The rest of what wasn't taken care of here will probably be taken care of hopefully before the year is over. And we're going to talk a lot about some of the things that are in here and there's more stuff in it than we're even going to have time to discuss today.

Libby Wixtead (05:11):Oh yes, I'm sure. And for the farm bill piece of it, I mean that should make a lot of our listeners happy that there were some provisions that were in there that have passed, but what are some of those key agriculture provisions in the bill that Ohio Farmers should definitely be aware of and pay attention to?

Steve Hamilton (05:30):Yeah, so we're going to go through some of this on a higher level and obviously dig down a little bit deeper, but the bill reauthorized much of the farm bills non-discretionary spending programs through 2031. So we're looking basically six years, maybe five and a half I guess where we're at right now of having at least knowing what we have to deal with. So the estimated budgetary changes for the farm program is over 65.6 billion. That's with a B billion dollars and over 59 billion of that is allocated to commodity support programs to provide farmers with a safety net. And this safety net includes agricultural risk coverage, a RC, price loss coverage, PLC and dairy margin coverage, DMC and crop insurance. Now it's significant that for the first time in over 10 years, they are now allowing farmers to update their base acres. Eligibility for these new acres will be based on 2019 to 2023 planting histories.

(06:31):And these new acres will be eligible for future PLC and A RC payments starting in 2026. So I would suggest that anybody who has acres that are not part of their base, that they start digging up that history and get to the FSA office as soon as possible and get those acres added in because there is a $30 million or $30 million, 30 million acre, excuse me, cap on total new acres that can be added. So there will be a cap on it. So that's something that if when your listeners can take advantage of it, they should do it as quickly as possible. They've also increased the government share of crop insurance premiums, which many people will find helpful. And the definition of beginning farmers has been expanded from five to 10 years. So what that's going to do is increase the number of farmers that can take advantage of beginning farmer programs and also the length of time that those programs are going to be available Now for those farming operations that involve more than one individual owner or participant, and we'll talk a little bit more about this later, the bill will treat pass through entities like partnerships, LLCs and S corporations equitably for payment eligibility and attribution.

(07:42):So that I think is going to be a significant change, at least as farmers look at their business operations. The annual commodity payment limit has been increased from 125,000 to 155,000. In addition, there is money for disaster assistance programs, trade promotions, ag research, energy, rural infrastructure, and other miscellaneous programs. When you start to look at all the programs that are involved in this that are somehow touching a related agriculture, it's really an amazing number of programs. Many of them, to be honest, I didn't even know existed until after going through it.

Libby Wixtead (08:20):I mean that's a very welcome to our farmers of a lot of those changes that are in that bill. Just in what we briefly talked about there, especially the beginning farmer being moved from five to 10 years, I think that aligns with what fsa, what their beginning farmer is, a farm credit, what they define as a beginning farmer. So having that across the board is very helpful for those beginning farmers. And so that is very exciting just to hear all of those changes that are in that bill. Now with the financial pressure that's currently facing Ohio farmers such as rising input costs and the falling commodity prices, how does the bill address that?

Steve Hamilton (09:06):Well, I wish I could say that it was going to decrease the price of machinery and inputs prices, but obviously that's not possible and that's really not in the bill. So we could hope, but that's not in there. So as I mentioned, there is funding to promote trade, which is going to increase the demand hopefully for products in the future on that. But the real substance of this bill is aimed at filling the gap as they may call it, and the problems mentioned previously are all part of the safety net. They have to help increase funding along with some changes that should provide more money to more farmers. More on the supply side though, there is a part of the bill that deals with the Clean Fuel Production Credit section 45 Z, and that has been extended and modified through 2029. So it supports production of low emission transportation fuels and those fuels must be produced by American controlled firms who are using feedstocks from the us, Mexico or Canada. So between the trade, hopefully some promotion there, maybe they get some of these trade arrangements done that are outside of this bill. But we've been hearing a lot about those things and this biofuels working on that side of it. Hopefully that will increase some of the prices for commodities that farmers are receiving and then maybe they won't have to rely quite so much on the safety net, which is really a strong part of this bill.

Libby Wixtead (10:38):Yeah, it seems like they've updated some numbers and in this bill of what agriculture is looking like now, and I think the trade promotion is what a lot of my farmers are very concerned with and getting those prices up and getting those trade deals done with other countries. Now let's dig in a little bit deeper into how they expanded PLC, the price loss coverage and agricultural risk coverage, the ARC programs and how that'll affect crop producers in Ohio.

Steve Hamilton (11:16):Yeah, well the bill increases the price guarantees for major covered commodities by 11 to 12%, and according to farm bureau's analysis, corn will be increased from $3 and 70 cents to $4 and 10 cents. Wheat will be increased from five 50 to $6 and 35 cents and soybeans will be increased from $8 and 40 cents to $10. So you're going to see those commodities which will probably make up the majority of what we grow here in Ohio are going up. And there's a whole list of those that are out there. And I would recommend you take a look at the Farm bureau piece that they put out that's out there on the internet does a real good job of analyzing all the farm segments that are in the bill. The PLC increased from 85% to 88% of the average. Now that excludes the highest and lowest values of past prices.

(12:09):ARC increased its revenue guarantee from 86 to 90% and raise the maximum payment from 10 to 12% of benchmark revenue beginning this year in 2025 for the 2025 crop year only. And this is kind of a nice thing that is in there. Farmers will receive the higher of ARC or PLC payments without making an election, so they don't have to make any decisions today about which one they're going to get. They're going to get the higher of the two, but that's only for this year only. Now the intent obviously for these programs is to provide financial support during periods of low prices, which is obviously what many of us have been experiencing revenue shortfalls, stabilized income overall and provide a safety net against market volatility.

Libby Wixtead (12:54):Yeah, I think this is what a lot of the farmers are going to be looking at and seeing how that pays out here over the next couple of years, especially this year. How will the reimbursement for livestock losses and funding for disease preparedness help livestock producers in the state since livestock producers have been facing a lot lately too?

Steve Hamilton (13:16):Yeah, there is livestock indemnity program in the bill that has been updated to provide a hundred percent of market value for animals lost to predators. I'm not sure how big an issue that may be here in Ohio out west, it's probably a bigger issue for them, but there's 75% compensation for animals lost to adverse weather and disease. So there is that part of it and we know that we've, especially in confinements in some of those situations, there's been losses that have been substantial. There is also increased funding for animal disease prevention and response. Hopefully these funds are going to provide increased availability for vaccines. That's their intent. Improve veterinary diagnostics and train responders to protect livestock producers from outbreaks. So a lot of the stuff that's designed there to be preventative or at least a very quick reaction to something to try to prevent it from spreading. So there's definitely money in there to try to help the livestock producers as well.

Libby Wixtead (14:15):Yeah, with that disease pressure coming through, we have a hog barn, and so knowing that those diseases can come through and really make an impact on those farmers really can be substantial sometimes. So seeing that come through this bill is a great deal. All right. Let's talk about taxes. Now. This bill includes several tax provisions. How did these changes benefit family owned farms and small agricultural business in Ohio?

Steve Hamilton (14:44):Well, the first one I'm going to talk about may not be impacting necessarily the small business necessarily, but for those who may have a C corporation or are thinking about setting up a C corporation, the small business stock gain exclusion has been expanded. Now this allows for a tax exclusion on the gain from the sale of the stock. This is designed to encourage business startups and early exits as well. So the idea is to get in, become profitable and then turn around and transition it. Now in our situation, we'd be looking at transitioning it obviously to the next generation or to another farmer, but there's incentive there to do that because you're going to be able to shelter that capital gain from tax. And as I said, that's not probably going to be typical for many of the farmers out there, but it is something to think about, especially for those who are looking at possibly transitioning to the next generation and looking at how they can do that and shelter some capital gains in the process.

(15:46):Now because of how the farm programs previously counted participants, and I had mentioned this actually earlier, there was some reluctance to use business entities other than sole proprietorships or general partnerships because each entity was being counted as one for farm program purposes when there may have been multiple people involved, maybe three, two people involved. But because they're operating, as I say, an S corporation, they were only counted as one participant for farm programs. So they've modernized that since that is now no longer the case, the see-through entities like S corporations, LLCs, family limited partnerships may find it advantageous to establish a pass through entity. So because now if we have three owners involved, even though they're operating as an LLC, they could be treated as three participants for farm program purposes. So that I think is a significant change. We'll cause people who are working with other people have other owners involved to look at how they've been doing things and say maybe it makes sense to do a pass through entity.

(16:49):The other thing that's going to probably encourage them to look at pass through entities is 1 99 a qualified business income tax deduction, sometimes referred to as QBI. And now what this does, it allows owners of pass through entities to take up to 20% deduction on their personal income tax. Now that's been there, but now that it's still going to be there and the limits on that deduction phase out has the phase out for that has been increased. So it was a hundred thousand dollars, so it's going to go from a hundred thousand to 175,000 for joint filers. So they've increased that phase out and the phase out will be at 175,000 going forward. So that limit has been increased and so I think that's going to be welcome for many farmers and maybe entice them to go into pass through entities if it makes sense obviously for their operation.

Libby Wixtead (17:45):

Yeah, I think that's going to make some farm families a lot easier for them to think through how they want to transition to the next generation and how they want to set up their farms. And that will be one thing for our farm families to definitely pay attention to if they're looking into that. Now let's talk about depreciation. I think that's farmer's favorite topic when it comes to December. What is the significance of restoring a hundred percent bonus depreciation and increasing the section 1 79 deduction for farmers?

Steve Hamilton (18:19):Well, for a lot of them they aren't going to be paying any taxes, but let's talk about the specifics on this beginning of this year, the section 1 79 expense limit has been raised to two and a half million dollars for a total phase out at 4 million. So that's a lot of stuff that you can expense off under 1 79. Now,

(18:41):Not as much as what it was when I was growing up, obviously now it could be a couple pieces of machinery the way the prices have gone up on 'em, but still that's significant and the full bonus depreciation for capital investments is now permanent and will be active for anything actually purchased in 2025. So you don't have to wait for next year to utilize it. So really as I've said between these two provisions, farmers should be able to write off most if not all of their farm related purchases. Now I want to provide a little extra commentary that's not specific to the tax bill, but I want to put a caution out there for a couple things because as we do land your legacy planning and we have the opportunity to look at tax returns and having grown up actually preparing tax returns for farmers at one time in my life, I know nobody likes to pay taxes. Absolutely. I don't like to pay 'em. Nobody likes to pay 'em. Farmers especially don't like to pay 'em.

Speaker 4 (19:39):Yes,

Steve Hamilton (19:40):But I have two cautions around that. One is especially for those who have families that probably the only type of disability that they're going to have available to 'em was going to be through social security. And that means you know what, you have to pay something into social security to have that available to you. Now we can get in a long discussion about what we think about social security and all that kind

(20:03):Of stuff, and I don't want to get into that discussion, but I do want to caution you that paying into social security is not necessarily a bad thing and you have to have income to do that. And when it comes to disability, farmers don't have a lot of selection as far as disability coverage is out there and social security is one of those things that can provide that coverage if something unfortunate were to happen. The second thing I want to caution on, and I know we're talking ag credit here, but I came into this business in the eighties is when I got, and most people are familiar with that. We had a farm crisis during the eighties. I saw people purchasing things on credit so they can get deductions

(20:48):And there's nothing wrong with that providing the numbers work for you, but unfortunately what we saw happen then was the markets turned, things changed and individuals had, they wrote a lot of stuff on their taxes, but now they were left with a lot of debt and the economics didn't support their ability to pay for that. And there were foreclosures and things that happened because of that. So obviously, and that's why you're in the business is making sure that people use that credit, use it wisely to expand the business and do the right thing with it. But I just want to be cautious that just don't do something because you're saving taxes. It's good to save taxes, but you should have some other reasons behind it.

Libby Wixtead (21:29):Yeah, we like to say, Steve, that it's a tool in your toolbox and you use that toolkit however you need to use it and only when it makes sense to do that. So not a lot of times we want to use things to fix problems, especially if they're last year's problems that are going to affect you for the next five to seven years. So yes, we do understand that.

Steve Hamilton (21:51):I know you do, and I wasn't talking, like I say, we have a tendency to overreact. If we want to save taxes, we'll do anything to save taxes and sometimes that's not the one, right?

Libby Wixtead (22:03):Yes, yes. I have experienced that in 11 years here at Ag Credit. Let's talk about the significance here of the estate tax exemption and changes that will affect generational farm transitions in Ohio.

Steve Hamilton (22:22):Well, this has been something that obviously I've tracked and been keeping track of and actually did podcasts about the sunset that was going to happen

(22:30):At the end of this year. So now we know we aren't going to have a sunset, so that's a welcome relief at this point. And I don't think we're going to see changes probably in any of these things that we're talking about until we have another administration come in and then who knows what's going to happen at that point. But at this point, this is part of the permanence that we were talking about from the 2017 Act that they've now made unified credit exemption permanent. Actually in 2026 they've increased it to $15 million. So that's a substantial bump up. Now the thing that your listeners need to understand is that that's $15 million that you can transfer at the time of death or while you're alive. And if you do it while you're alive, that's a gift. But there's no gift tax or federal state tax unless you gift more or transfer more than $15 million. So that's substantial for a married couple. Obviously they can double that amount, which would be $30 million. And remember, this is going to be adjusted for inflation. So in 2027, most likely it's also going to increase from the 15 million in 2026. Now, one of the concerns I have is that's great news because that means we don't have to think so much about the estate tax issue and our,

(23:46):But the danger is that many farmers assume that since they don't have an estate tax issue, that the federal government isn't going to force 'em to sell their land or pay for taxes that they don't really have to do anything.

Speaker 4 (24:00):Well,

Steve Hamilton (24:00):I would suggest, at least from what I've seen, that most farms today are probably lost because of inadequate planning and not because of taxes. It really comes down to the planning that they've done, how they set that business up and the transition planning that they've got in place. And it's not usually taxes that cause a problem in many cases it's actually family unfortunately. So transition estate planning is more than, like I say, more of avoiding taxes. It's really about trying to continue that farm and making sure you've set things up so that can happen.

Libby Wixtead (24:34):Yeah, that's very significant of, yes, we don't have this issue going forward and that that's the reason that people typically are looking at the transition, but the transition is just more than this estate tax and looking at that and making sure that family has an understanding and you are transitioning over time with that family member is very, very helpful or family members I guess they should say. So I agree with you a hundred percent on that and I feel like we've beat a dead horse with that on the farm transition just to make sure it moves on to the next generation because we know how important that is to farm families. What should families be doing now to prepare for or take advantage of the bill's provisions?

Steve Hamilton (25:23):Well, as with any of these tax bills, we read these things, people write about these things and sometimes our understanding is not correct. The government comes out and says, well, that's what it seems like it's saying, but that really isn't what it's saying. We've seen that happen a number of times, so expect there to be clarifications and eventually there'll be regulations around a lot of these things that will come out as well. And so just continuing to read articles and publications that are on the internet is obviously going to be important. As I mentioned, farm Bureau has a very lengthy and comprehensive article on the Farm bill stuff that's in this tax act that is very helpful if you probably just go out on the internet and search OBBB Farm Bureau, probably something like that and you'd probably find it. I think the Farm Service Agency, the FSA is going to be very busy. They're going to be figuring out what they've got to do under this bill because they've now been given all these guidelines and they have to figure out what the rules are and then how to apply those rules. And so I'm going to say probably give them a little bit of grace through this because they're figuring this out, but obviously they're going to be one of the main resources for local farmers.

Speaker 4 (26:42):That's

Steve Hamilton (26:42):Where farmers are going to have to go to find out how they apply for the insurance, how to apply for ARC and PLC and all the other programs that are there and like I said, try to get their base acres increased if they can. All that's going to go through the FSA, so it's important that they use them obviously as a resource and I'm sure they will. Now the other thing is, especially as we're getting out of the second half of the year and now that we know what this tax bill says, farmers should be talking to their tax advisors, I would expect the tax advisors who actually do some planning and I would suggest if you don't have a tax advisor that helps you plan that, you maybe find one that does and hopefully they've got time in their schedule, you should be talking to them and looking at saying, okay, here's what I'm going to get or looks like I'm going to get in the way of program money. Here's what I can do for depreciation. I can basically write off everything. Most likely it looks like two programs there, but also do I need to look at changing my structure, how I'm operating? Do I need to set up a business entity? Or maybe in some situations people have over set up business entities, maybe they don't need it.

(27:50):So just reexamining all those things with the tax advisor to try to make sure you take an advantage of everything that you possibly can. And while we hope that this is going to have a very positive impact, that's the hope. Obviously that means updating information and structural changes that are going on with your Ag credit lender, right? Making sure them informed on what you're doing and the changes you're making. You don't want them to be blindsided by something and so keeping them informed and up to date is going to be obviously crucial so that you can use them when you need them and not have to be fill out a bunch of paperwork at that time when you really need to move on. So even things up to date with them is important. Now that there's obviously this certainty that we have, we aren't worried about the sunset like we were just a few months ago.

(28:41):Farm families should be taking the opportunity to work on their transition planning now that we actually have some guidelines here on where we are at with taxes. And while it's obvious that a qualified attorney needs to be involved, absolutely they want to work with a good qualified attorney, it's often just as important to have a knowledgeable manager, legacy advisor involved to kind of help quarterback the process. I've been involved in doing estate planning and presenting to Farmers for years before I came to Nationwide. I was doing that as well. And unfortunately what I found is that people will all agree it's important, but the planning just doesn't get done. It gets delayed. And that's because of the tyranny of the urgent. By the way, that's the name of a book. I don't know if it's still in print or not, but, and all of us deal with it.

(29:30):I deal with it. And that means that we just get focused on the things that have to get done right now and sometimes forget about what's really important. So we you to work with another party, Alania legacy advisor, and because they can help move the process along, they can help make sure that the steps are being taken to get that transition plan where it needs to be to get it at a higher level than what typically happens if you just walk into an attorney's office and get a will drafted. So encourage them to seek out Land Legacy Advisor if that's where they are currently in their life situation.

Libby Wixtead (30:10):Ag Credit and Nationwide have a great relationship through the land as your legacy program. Every account officer should be able to connect you with somebody, an advisor that can help you get your plans together. It has been very successful for a lot of our farm families that have gone through it and then they walk into the attorney's office and get everything set up and then they're ready to go and they hashed out everything ahead of time and walked through that. With that. Lana is your legacy advisor and so Steve, we really do appreciate Nationwide help on that and that program is such a wonderful program for farm families. Where can listeners learn more about Nationwide's work in agriculture and learn more about land as your legacy?

Steve Hamilton (31:00):Well, as you mentioned, obviously talk to their lender and see if there's an advisor there locally that can help them. But we do have a website, it's nationwide.com and that's going to be slash your land, so nationwide.com/your land. Or you can contact us by email at L-A-Y-L that stands for Land Your Legacy, LAY L@nationwide.com and put a request in there as well. So hopefully we look forward to working with you if we can provide any assistance. We're glad to provide it. And there's a few of us that do review the plans. We don't put 'em together necessarily, but we review 'em and suggest changes and work with the advisors well on helping answer questions. And so you never know, maybe I'll be one of the people looking at your plan as it comes through.

Libby Wixtead (31:56):That's exciting to put a name with the people that are behind the desk on that. Well Steve, we really thank you and appreciate your time today and we are so glad that you're able to take this big bill and break it down for us. I mean, I've learned a lot just sitting here listening to all the topics that we talked about and I know our listeners are very appreciative of this too.

Steve Hamilton (32:21):Alright, well thank you. Appreciate the time and the opportunity and the relationship we have with a credit.

Libby Wixtead (32:26):Yeah. And thank you to all of our listeners for listening and we will talk to you next time. And all the links and the email for Land As Your Legacy will be posted in the show notes. So we'll talk soon.

Speaker 1 (32:44):Thank you for listening to AgCredit Said It. Be sure to subscribe in your favorite podcast app or join us through our website at AgCredit.net so you never miss an episode.

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