Tax law allows for the treatment of CCC loans either as a loan, or as income. Some farmers use the first option and treat CCC loans as loans. Other farmers make the election to treat CCC loans as income. Once elected, you must continue to report in this manner unless you request permission to revert back to the treatment of CCC loans as loans for tax purposes. This permission is automatic and is requested by filing Form 3115.
| Income Tax Treatment of Various Dispositions of CCC Loans and Commodities | ||
| Disposition of the Loan or Commodity | Treatment of CCC Loan When Received | |
| Treated as Income (i.e., Farmer Made § 77 Election) |
Treated as Loan (i.e., Farmer Did Not Make § 77 Election) |
|
| Loan paid off by forfeiting grain | No further income reported | Amount of loan reported as income |
| Grain redeemed by paying off loan with cash | Farmer has basis in grain equal to loan amount | Farmer has a zero basis in the grain |
| Grain redeemed at posted county price (PCP) that is less than loan rate | Farmer has basis in grain equal to loan amount minus marketing loan gain | Farmer has additional income, marketing loan gain = (loan rate - PCP) x number of bushels |
| Redeemed grain is sold | Farmer has gain (loss) equal to sale price less amount of loan, which is the basis in the grain | Farmer has income equal to sale price |
| Redeemed grain is fed | Farmer has a feed deduction equal to the amount of the loan which is the basis in the fed commodity | Farmer has no deduction |
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Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension.
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