NOTE: This was written well before congress decided to NOT make these changes. I wrote this with the intent of needing to talk about the proposed changes instead of waiting until they made the changes.
I was stunned as anyone when I read about the new Biden administration’s proposed changes to the capital gains tax and stepped-up basis. The intended capital gains tax will increase to 39.6%, the highest capital gains increase in U.S. history. In addition, it would NOT include a step-up basis. So what does this mean and how will this affect the family farm?
What is the capital Gains tax and step-up basis?
Typically, capital gains tax is the tax assessed on the profit (the difference between the value of when the property was originally purchased to when it is inherited or sold) when selling a piece of land, property, or a business. A stepped-up basis is the revaluing of an asset at the time of death and/or purchase to the current value. For example:
- A farmer purchased 160 acres in 1984 for $1500 per acre (total of $240,000).
- The farm was inherited by family member(s) in 2021 after the farmer passed away. The value of the land at the time of death was $8000 per acre (total of $1,280,000). Normally the step-up basis will change to $8000 per acre at the time of death and if the farm was sold five years later and valued at $8500 per acre, a capital gains tax would be assessed on the additional $500 per acre.
- Biden’s proposal would eliminate the step-up basis at the time of death and when the property is sold, the capital gains tax would be assessed on the entire amount (difference between $8500-$1500) at a rate of 39.6%. The total amount of tax would be $443,520. Yes, you read that correctly.
- In addition, Biden has also suggested a provision where the capital gain tax would be assessed at the time of death (and not just at the time of sale) of the farmer. Again, the tax would be $443,520.
How will the proposed changes affect farmers? Is this fair?
I don’t believe so. Don’t get me wrong, I understand there will be increased taxes. Elections have consequences. We all expected new/higher taxes with the new administration. In addition to the capital gains tax, there are also state and federal estate taxes and President Biden wants to decrease the federal exemption by half. More taxes.
What is heartbreaking is the notion that as a family farmer, we have spent years and years growing our farm with the hopes to pass it on to our family someday. We have poured our life into starting and growing our farm. Knowing all the hours, stress (both emotional and financial) and risk it took to build our farm, I feel disappointed that individuals in our government want such a big portion of our farm when we pass. Is this fair? How will our family keep the farm going? Simply, they won’t be able to. And this makes me both sad and angry. The government has no right to nearly 40% of our farm’s value.
Why we must speak up
As farmers, we are a very small percentage of the population. Our voice continues to shrink. It is up to us and our farm organizations to reach out to our elected officials and put a stop to this proposal. It’s very difficult because people who make these proposals have probably never put one foot on a farm and have absolutely no idea what it’s like to farm. We must ask ourselves, do we as a country want family farmers in our future? Do we want our family to continue in our footsteps? It will not happen if we allow these proposals to go forward. We need to ask our legislators to eliminate these proposals.
contact your congressman
It’s imperative that we all use our voices to contact our legislators. Do I believe at the end of the day there will be changes to the proposed changes? I certainly hope so. If not, this country’s agriculture will no longer be recognizable and we will lose a major thread of American rural and farm life. We need to remember farmers are the people who feed us. Search this website to contact your congressman.