Farmers who get Environmental Quality Incentives Program (EQIP) grants may be wondering about the tax implications for this funding. Our Farmer Success team dug into the details and found that EQIP recipients -especially those receiving large grants – may fail to adequately account for these grants on their tax returns and as a result, miss out on thousands of dollars in income tax savings.
Many tax preparers don’t know how to handle large EQIP grants and fail to include them as part of the depreciation schedule or Schedule F expenses incurred, because the IRS allows farmers to slot up to 25% of their gross income in a soil and water conservation expense category. For farmers who received a large EQIP grant that exceeds this 25% threshold, they may incur significant tax liabilities if they proceed with filing their return in this same way.
The good news? There’s a fix that your tax preparer can employ. Section I.R.C. 126 of the IRS tax code allows farmers to write large EQIP grants into this section to protect them from being categorized as taxable income and expenses. To ensure that farmers maximize their tax return, farmers should check with their tax preparer to make sure they’re up to date on I.R.C. 126 along with the farm’s tax records. This can save farmers thousands of dollars in taxes and untold time and stress navigating the tax implications of their hard-earned EQIP project.
Find out the deadline for your state so you can submit your 2023 EQIP application with confidence.
Producers do a lot of research on the farm and ranch by examining their land and testing new methods. See if a SARE grant could help fund your next “experiment.”