Tax Deductions for Agriculture in Income Tax Returns

How Can Agriculture Benefit from Income Tax Returns?

One of the ways in which farmers can benefit from their income tax returns is through tax deductions for the passive interests on agricultural loans.
The Italian Revenue Agency has recently published a guide outlining the tax benefits for the 2024 income tax returns, including deductions for the passive interests on loans taken out by farmers.

Agricultural Loans: What They Are For

Agricultural loans are a specific type of loan aimed at various purposes such as the acquisition of agricultural farms or land, renovation of facilities essential for agricultural activities (e.g., barns, warehouses), modernization and expansion of agricultural businesses, purchase of livestock, machinery, and other improvements.

These loans are designed for self-employed workers, specifically tailored for those working in the agricultural sector, including agricultural, agro-industrial, livestock, and agritourism businesses.
In most cases, the loans are secured by the land itself, typically through a mortgage.

Tax Deductions for Agricultural Loans: Who Can Benefit

While loans and mortgages can be obtained for various needs, some are considered particularly deserving of protection.
For instance, just like mortgages for purchasing or building a primary residence, agricultural loans are also eligible for tax deductions on the passive interests paid.

The aim is to support businesses operating in the agricultural sector, which often struggle to generate sufficient income due to the sector’s specific characteristics.
The Italian Tax Consolidation Act provides for a 19% deduction from the gross tax for expenses incurred for interests on agricultural loans and related charges.

Calculation of Deductions and Limits

The deductible amount depends on the cadastral income assigned and is equal to the sum of the dominical income (revalued at 80%) and the agricultural income (revalued at 70%).
Additionally, a 30% revaluation has been in effect since 2016.
Consider, for instance, a scenario with dominical income of 100 euros and agricultural income of 120 euros.

After the respective revaluations, the total sum eligible for deduction would amount to 499.2 euros.
It’s essential to account for income derived from land participations in partnerships in calculating the limit for deductibility.
Capital gains from transfers and consideration received for leasing for non-agricultural purposes should not be included.

Claiming Tax Deductions on Agricultural Loans

To claim the 19% tax deduction on the passive interests of agricultural loans, payments must be traceable, starting from 2020.
The deductions related to agricultural loans should be reported in the E section (rows E8-E10) of the 2024 tax return form.
Loans taken out up to December 31, 2021, should be indicated with code “11,” while those from January 1, 2022, onwards with code “47.”