An unintended consequence of well-intended federal tax reform left some Indiana farmers with a higher state income tax bill this spring than they expected. If you fall in that category, Shelby Swain Myers suggests you check back with your certified public accountant.

“Farmer-members began contacting us about higher state income tax bills linked to equipment traded in 2018,” says Swain Myers, associate policy adviser for Indiana Farm Bureau Inc. “We found the issue occurred because of some provisions included in federal tax reform. Working with legislators, we were able to get it corrected.”

Senate Bill 565 rectified the situation once it became legislation, and it’s retroactive to cover 2018. However, if you traded personal property in 2018, you will need to file an amended state tax return to reclaim your money.

Equipment trades

Here’s where the snafu occurred: Suppose you traded combines in 2018. The depreciated value of your current machine was $61,000. Your dealer allowed you $112,000 in trade on a new $397,000 combine. You paid the $285,000 difference and thought everything was wrapped up.

Federal tax law doesn’t recognize the gain from trade-in value as taxable income. However, as state law was on the books, the trade-in value was subject to income tax. When your CPA calculated your state income tax due, you paid on the $112,000 trade-in value offered by the dealership. At 3.23%, that would be $3,617.

“We saw some examples where members paid from $5,000 to as much as $25,000 more state tax than they should have,” Swain Myers says. “Now that the rule has been corrected, they can file an amended return and reclaim that money.”