The number of farms and ranches paying more in taxes would be dramatically higher if proposed tax code changes affecting agriculture become reality, a new study from Texas A&M’s Agricultural and Food Policy Center found.
Proposed changes to stepped-up basis and other tax provisions from the Biden administration and Democratic members of Congress have raised alarm bells on farms and ranches.
Two bills including the “Sensible Taxation and Equity Promotion Act” would eliminate stepped-up basis upon death of the farm or ranch owner and the “For the 99.5 Percent Act” would decrease the estate tax exemption.
The Texas A&M study conducted by Joe Outlaw, co-director of the Agriculture Food Policy Center, found larger farm operations in particular would face significant tax challenges. The center maintains a database of 94 farms in 30 states.
“Under current tax law, only two of the 94 representative farms would be impacted by an event triggering a generational transfer,” the study found.
“By contrast, under the STEP Act, 92 of the 94 representative farms would be impacted, with additional tax liabilities incurred, averaging $726,104 per farm. Under the 99.5% Act, 41 of the 92 representative farms would be impacted, with additional tax liabilities incurred, averaging $2.17 million per farm.
“If both the STEP Act and the 99.5% Act were simultaneously implemented, 92 of the 94 representative farms would be impacted, with additional tax liabilities incurred, averaging $1.43 million per farm across the 92 representative farms.”
Under current law, when the owner of a farm or ranch dies, the estate is subjected to federal estate taxes.
The study said as of 2021, $11.7 million per individual and $23.4 million per couple in assets are exempted from the estate tax, “effectively protecting most farms from the estate tax.”
Outlaw said based on the email responses he received from farmers and ranchers surveyed, many of them are concerned. Usually when A&M reaches out to those producers on various issues about 10% to 15% of them reply.
AgFax Weed Solutions
“We sent this email, within one week we had 40% responses or 247 producers sat down and filled out and told us, ‘this is how this was an impact and that it would be devastating,” Outlaw said during a news conference Tuesday.
When a decedent passes farm assets to an heir, the heir is allowed to take fair-market values as their basis in the property (or stepped-up basis). That allows heirs to effectively avoid capital gains taxes.
Given that cropland values have roughly tripled during the past 25 years, most producers are sensitive to any changes to the estate tax exemptions or stepped-up basis.
According to USDA, the average farm size in the United States in 2019 was 444 acres. The representative farms and ranches in the study are all “assumed to be full-time, commercial-scale family operations,” the study said.
“The results of this analysis will vary greatly by farm, depending upon each farm’s asset base and the share of their farmland they own versus rent.”
Rep. Glenn Thompson, R-Pa., ranking member on the House Committee on Agriculture, said during a news conference on Tuesday the proposed tax changes would make it more difficult for future generations to farm.
“For farmers and ranchers these new tax levies are not just an annoyance,” he said. “They don’t mean that a farmer will have to forego a new truck for a year, they mean an heir might have to sell off a significant chunk of the family farm or quite frankly, lose it all together.”
The Biden administration has proposed creating tax carve outs that it says will protect farmers and ranchers.
“But the details of this report illustrate just how complex farming operations can be, how they can vary across regions and commodities,” Thompson said.
“The idea that there’s one-size-fits-all exemptions will hold all family farms completely harmless is naive at best and disingenuous at worse.”
Read more here:
- “Scott Raises Concerns Over Stepped-up Basis, Winning Praise From Corn Growers” here
- Read the study here
Todd Neeley can be reached at firstname.lastname@example.org
Follow him on Twitter @DTNeeley