Farmers Tax Equity Act of 1987

Farmers Tax Equity Act of 1987 - Amends the Internal Revenue Code (IRC) to define "large animal processors" and include them among the types of corporations required to use an accrual method of accounting to compute taxable income. Excludes such entities from eligibility for exception to these accounting requirements under most circumstances.

Defines a "single purpose commodity storage structure" and includes such structures and single purpose livestock structures, as well as the work space appurtenant to each type of structure, as 15-year property for purposes of the accelerated cost recovery system used to determine the income tax deduction for depreciation.

Repeals IRC provisions that disallow the inclusion of noncorporate taxpayer losses from certain tax shelter farm activity in computations to determine alternative minimum taxable income.

Amends IRC provisions relating to the income tax deduction for health insurance costs of self-employed individuals to: (1) make the deduction permanent (under current law it expires after tax year 1989); and (2) increase, by annual increments of 25 percent (to 100 percent for tax year 1990 and thereafter), the percentage of such costs allowable as a deduction.

Repeals specified provisions of the Tax Reform Act of 1986 that eliminated income averaging. Provides that the Internal Revenue Code of 1986 shall be applied and administered as if such provisions had not been enacted.

Amends the IRC to restore income averaging for a person: (1) actively engaged in the trade or business of farming, including aquaculture; and (2) whose average annual gross income for the three preceding taxable years is at least 50 percent attributable to farming.

Amends the IRC to revise the treatment of activities of members of a taxpayer's family in determining a taxpayer's material participation in farming activity for purposes of passive loss and credit limitations.

Exempts property used predominantly in a farm activity that does not involve the production of plants or animals whose preproductive period exceeds two years from provisions that require a taxpayer who elects to deduct preproductive expenses to apply straight line depreciation rules to the remainder of the taxpayer's farming property.

Defines the preproductive period of livestock to be used for breeding purposes to begin at the animal's birth and to end when the animal is able to breed.

Repeals specified provisions of the Tax Reform Act of 1986 that extended limitations on tax deductions for certain prepaid farm supply expenses to certain non-farm-related taxpayers with excess prepaid farm supplies. (Prior law applied only to farming syndicates.)

Exempts from the percent reductions applicable to investment credit carryforwards any investment credit related to property used in a farming business when the affected taxpayer's average gross income for the three preceding taxable years is at least 50 percent attributable to such business.