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.
America’s Family Owned Farms Now Face the Greatest Threat to Their Existence
Are You Ready for Capital Gains Tax at Death
The reality is, it’s only when the family SELLS the farm that this is an issue. There won’t be a change to that. Second – why should capital gains taxes not be paid on the gain? Right now it’s a loophole created primarily because the rich make the rules (and this issue mostly affects the wealthy), second – because the original basis data used to be too hard to calculate, but now days that data is generally easily available. Third – YOU”RE SELLING YOUR FARM. You’ve literally chosen to sell the farm – so it wasn’t the tax that ‘killed the family farm’ (forced you to sell). In addition, if you want to keep the farm in the family – there are other options – putting it in a trust, etc.
Wanda Patsche says
Yes, Scott, that is how the law is right now. But the issue is there is talk the Biden administration wants to access the capital gains tax at the time of the owner’s death and is passed onto the heirs. It wouldn’t wait for the farm to be sold. It is not law–only a proposal. This is why I wanted to write about it so we can keep it top of mind and connect with our legislators to let them know the impact of eliminating the step-up basis. If we don’t speak up, some of these measures may be passed which would be detrimental to family farms. Thank you for your comments!
Why should farms enjoy a different standard of inheritance and tax incidence than other assets?
You must be.from the city!
What if the farms that would be passed down to family members were sold to some developer and that land would be lost. You say so, well if that happens all over then now we have less food meaning prices go up and less people eat! I know you probably think food comes from grocery stores but it has to be grown first. Think about that.
ROYCE Irvin says
Scott is correct. Your story is misleading and is written from worst case scenario. I would not like you reporting for my home town paper. Next time tell the whole story.
Wanda Patsche says
I will respectfully disagree.
Wanda, please cite your source for the statements that “The Biden administration wants to access the capital gains tax at the time of the owner’s death” and “It wouldn’t wait for the farm to be sold”.
These statements are blatantly false, and you will not be able to back them up with facts.
Wanda Patsche says
Michael Davin CPA says
If at the time of death the property is valued at the FMV and included in the estate of the decedent for estate tax purpose then the property’s new basis should be its fmv… this is just another money grab by the Democrats….
Why would the heirs pay capital gains if they didn’t sell it yet? I wish my family gave me a farm. I wouldn’t mind paying those taxes.
Wanda Patsche says
They would pay capital gains if the government passes the law to require it. If you are a farmer, you would mind paying the taxes because you could very well be done farming because the farm would need to be sold to pay the taxes.
Wanda, apologies if answered somewhere else. If so, please direct me to those and I’ll be content.
First, from what I can tell “step up” is redundant with “gains” in capital gains, as those of us in finance understand it. Yes? It’s the difference in the buy and sell prices. So what you’re really worried about is an inheretence tax paid by the recipient. It’s not really capital GAINS tax on the sale of a property, right?
Second, assuming there were a transfer/inheritance tax, why not just put the land in a corporation or trust? Why not do that in any case without any presumed change. There’s no reason the land and the rest of the farm’s operations and capital stock have to be in the same entity.
My point is that we’re already legally reducing taxes in the situations you discuss on a whole basket of assets and the tools already exist for that, don’t they? A simple Internet search would lead you to a lot of options to mitigate the cash requirements of an asset inheritance of this scope.
Only taxpayers with incomes over $1 million will pay that rate
Exactly Scott, you are selling “YOUR” farm! Why should the government get to take 39% of that money that your family worked so hard for, only hoping to be able pass it on to their children? It’s not about the rich, its about people taking chances and risking everything, hard work to make a better life for their family. And you are saying it is okay for the government to come in and grab almost half of that… sad to know so many people like you are living in this country and think the way you do.
If you read the actual article, the author fails to site their sources. If you look for yourself, you will see that it is clearly spelled out, this tax only applies to those who have a taxable income of $1,000,000 before these gains. You can choose to look this up for yourself or take a stranger for their word.
Wanda Patsche says
I have clearly stated that this is not law. This is what is being talked about in the Washington DC circles. The whole point of the article is for each of us who may be affected by these possible changes, contact our legislators. If the step-up basis is eliminated and assessed at the time of death, it will be devastating for the farming and rural community.
You obviously don’t have any idea what you’re talking about. Family farmers spend decades toiling thru all kinds of adversity just attempting to hold together an operation that’s financially viable. How many tens of thousands of family farms have been lost in the last 40 yrs. Pres Trump understands business and gave us tax policies that weren’t meant to destroy us. Biden obviously hasn’t ever done anything in his life but enrich himself and his family by all means of corruption that we’re just learning about. So for you to say that this is just fine is really disgusting.
Ummm, Doug, Trump inherited his wealth from a millionaire real estate developer father, Fred Trump. Joe Biden comes from coal country Pennsylvania. Joe Sr sold used cars for the family to get by. Donald Trump practices nepotism right out in the open.
Furthermore, as president, Trump picked a fight with the US’s largest agricultural export market, China, resulting on tariffs on agricultural exports from the US.
I get why you might have been star-struck by a guy who tells you “our tribe is the best”, but that spokesman was born in Manhattan with a silver spoon in his mouth. Never worked with his hands. He knows what to tell the gullible to get them on his side, even if his policies smack them upside the head.
There will be a major tax at the death and passing through inheritance to the next family member.
Scott, why do you and many liberals ENVY so much. The fruit of the toils and sacrifice of those that work and save?
Because idiots like you whine about socialism while taking subsidies and blue states pay more taxes than anyone.
Funny how you’re ok with the big bad government taking money from my pocket as long as you are the one getting it.
Brock A Besser says
Scott, thank you for your well thought out response. I read through the Biden tax plan referenced in the article and realize that 95% of us won’t notice any difference in our bank accounts.
I also want to add that my relatives in the city also work hard everyday producing goods and services that the rest of the country, yes that includes us farmers, rely on to do our jobs and live our lives. I am sure they also want to leave wealth to their children and grandchildren.
Let’s not fool ourselves, unfortunately the family farm is becoming a thing of the past especially during the last four years of ill advised policies.
Wanda, I suggest you get a good accountant to help you with your business exit strategy. Ours has created a plan that covers both situations of sale and God forbid untimely death. I am sure once you do this, the current tax plan and any changes made to it will make more sense and be less scary.
Wanda Patsche says
The issue I have is with the elimination of the step-up basis. At some point, it will catch up with us.
Aram Garabed says
You have no right to take 40% of someone’s money. He worked hard to build his farm.
Well how do you propose we pay for federal expenditures? Just the DoD budget alone is about $5,000 per year per tax payer. Since the majority of Americans don’t pay $5000 in income tax (your contributions to SSA and Medicare/Medicaid aren’t “income” tax in this case), you can see why this becomes a challenge. It would be nice if we could have a free military, but as the biggest item in the government budget is wages and pensions, I’m not so sure we’d have much of a fighting force if we didn’t pay those folks.
It’s important to remember that the government budget is not a big black hole for cash in our economy. It’s actually an accelerator in this case since it’s spending more than it is taking in. So we have the government to thank for a big portion of our asset values. You see the 40% going out, but why not the more than 40% in added value that comes from a long-running stable, wealthy, infrastructure-rich, market-based capitalist economy? Poor countries have lower taxes, and lower property values. I don’t think you’ll find that a win-win.
I am sympathetic to that feeling of loss that comes with paying taxes. Believe me. But there is a reason and there is a lot of gain. We just need to work hard at reminding ourselves of those more abstract benefits.
From what I read it applies income over million dollars.
I don’t think anyone realizes the big picture. Just like these dems used this virus as an excuse for about a million things to happen they want to drive farms and small business out of business so that they the government can take over and profit from it. The government is who will own and run american farmland in the near future. Why else Bill Gates buy all that land out west? To sell to the government when the time comes. Government loaned all this stimulus ppp and eidl stimulus to small businesses right? If u can’t pay it back when they refuse to forgive it even when u followed the rules to a T do you know what that means? The government just bought your business for only the amount of that. “relief” loan. They did that to steal businesses from people is all it was. Farms and farm land are toast better make arrangements gates and elites and the government working together will own and run every tiny bit of it very soon it has already began. Peasants will continue to be peasants no way around it. Sorry for the blatent truth but u remember you read this in about 5-10 years Maybe less ok? I also own a farm by the way. Bought it myself with cash from a settlement from my fathers wrongful death suit he was in a bad accident. But that’s why they playing with it like this. They’ll take 50% of all small businesses in the country due to this plandemic. Facts.
Paul Curley says
I don’t believe that Biden is proposing a capital gains tax increase on true modest family farms. I believe that the target will be large corporate farms whose primary business is not agriculture.
Trump said this would happen, if a socialist won the election. More bad policy’s to come, higher taxes, higher gas prices, higher cost of living, so buckel up, election have consequences.
Imagine thinking Joe Biden, the most conservative of the 25 dems who ran, is a socialist. Honestly, pull your head out of conservative propaganda. That is utter nonsense. You should be thanking your lucky stars Joe Biden won, if “socialism” (aka living in a compassionate society) scares you.
U probably think people should “pull themselves up by their bootstraps”, yet you want children of billionaires to inherit unchecked political power having done NOTHING to earn it? Without helping society at all? Children of rich parents will still be rich once they pay death/capital gains taxes. There just wont be unchecked generational oligarchies. Ya know the quote from Warren Buffett that’s basically “My secretary will always pay higher taxes than me” because most of his wealth is acquired through capital growth and hers through income tax.
Awww…poor poor children will only get 500,000 instead of 800,000 dollars that athey did absolutely nothing for when they sell the farm? And that money will go to feed the poor, improve our roads, our schools, keep a standing military, and subsidies for farmers, too. And those children may still slightly have to pull themselves up by their bootstraps? (they are still inheriting half a million, those poor poor kids…) How unfair… Will someone think of the children (inheriting millions of dollars)?
Wanda Patsche says
I think you have lost the whole sense of the article. This is the problem we have in agriculture. Nobody understands that just because land is valuable does not mean farmers have the cash flow. Many farmers either have no profits or lose money on their farms because of situations that are out of their control. Just remember that we feed you.
Why isn’t the farm turned into an llc where the family owns the llc instead of having to “pass” it on.
This article is written poorly and not thought out.
Judy Christians says
LLC is held by a person(s) – if this worked every farm would be in an LLC. Wanda has this story correct. Farms would be sold to satisfy this proposed tax.
Kyle Olson says
You can get that cash at any time with a Farm Real Estate loan. Don’t pretend you need to sell any land. People thinking farm land should pass to descendents differently than any other asset is simply ridiculous.
That money is in land mostly, that grows the food you eat Not cash. So when it’s all bought up as resorts for the socialist government and you’re starving you know why.
I suppose you don’t realize that most farms are family owned where the entire family, including the kids, pour most of their life into the operation. For the government to steal these farms from those who spent all their energy and time to make a living is appalling. Call your congressman and senators to prevent the government from stealing our farms.
Keep in mind you fools voted this guy in. He actually said he would increase taxes on many occasions! That use to be the kiss of death in any campaign. Trump was not a politician, and that was his initial draw. Sleepy Joe has had 50 years to accomplish nothing. This death tax is wrong. Just wait till Biden turns his sights on our Social security benefits. He’s been trying for years to use that money. He might be able to get it now. If you voted for Biden, you’re a complete idiot. He will ruin our country.
Not all farmers are millionaires. Some live paycheck to paycheck. You’re delusional and don’t understand reality. My property is not your property or the government’s for that matter. That’s like me walking into your home and making claim to your property because I believe it will help me or someone else. (Okay modern day wannabe Robinhood that is actually stealing from the poor) That’s extremely stupid and it’s theft. Another statement that proves how lost with reality you truly are is when you said, “ And that money will go to feed the poor, improve our roads, our schools, keep a standing military, and subsidies for farmers, too.” This is comical! I guess you’ve never looked into government spending.
Ian Moone says
Sorry, not buying this story. Where did you read this? Is it an idea in his head? Maybe. But where did this claim originate? Name a senator, a congressman, a bill number.
Perhaps you should address reality more than speculation?
Wanda Patsche says
This article is well over a year old.
So it was written while Trump was in office and BEFORE anyone knew who the Democratic challenger would be!!
This is propaganda by the wealthy to scare everyday people into fearing policy that will affect the rich rather than the everyday person.
No one will owe money when you inherit a farm unless they sell it. If the sad story is “How is your family going to keep the farm going with this new tax?”, it is at complete odds with the reality of when this tax is assessed.
We need to unify around class and make class-based decisions, and not let misleading articles scare us into voting against our own best interests. The wealthy pay less in taxes than the average American and they do that through capital gain tax loopholes. Let’s have them pay their fair share.
Did you even read the article? It’s upon INHERITANCE, without a step up. Good grief. And you want a class system? Good Lord. What’s “their fair share?” Are you unaware of how much they do pay? Are you unaware of the fact that they pay people already to make sure they take advantage of tax loopholes? Do you think that they will not pay those same people to pay the taxes you think they should? Guessing you love AOC… LOL
The article is wrong. Capital gains tax only occurs if there is a capital gain aka a sale of the property.
Wanda Patsche says
Correct. As of right now, which is what I stated.
Is the above considering the estate tax exemptions? Currently an individual can leave an estate valued at $11.6 million and $23.16 million and not be taxed. I do not see how a capital gains tax will be relevant in the passing of inherited property as the current rules are clear that is a non taxable event up until the previously stated amounts. I can see the issue with not allowing the step up in basis of inherited property but if the family members the property was going to left to felt that they were going to sell once they inherited, then I would advise the current property owners to sell the land and let the family inherit the cash.
Deanna Perea says
Many farmers do not have family members who will ever farm after them. They are just inheriting land to be rented, or sold for their benefit.
TINA D PEREZ says
How do you know this? What most family members will do?. Some family fans have been around for generations.
Tabathia Anthony says
And that is really sad. We need the Farmers We need hard working honest people.
Ann Barnes-Adkins says
No where do you discuss the gains cap….if you sell for over 5 million you will have to look at this……undoing trumps cap of 23 million.. Alot more to thos story.
Dan Fast says
The “stepped up basis” tax is not just on farms but for homes and businesses. While still a proposal do you really believe that Biden will not seek the opportunity to garner more tax money for the government? One thing to consider: Farmers pay property tax and income tax they earn off of their land. In essence farmers as well as businesses are being double taxed if they choose to end their business.
Wanda Patsche says
Joshua Gourlay says
So the essence of this article is that farmers shouldn’t pay capital gains. Fine, I guess. Rarely do americans ever deal with a capital gains tax throughout their life’s but it’s the reason the 400 richest families pay less in taxes than the middle class. The stepped us basis thing you’re talking about is totally dumb though. You’re asking for MORE loopholes for people to exploit? That’s why our tax system is so unfair in the first place. It’s a tax system that asks the poor and middle class to pay far too much and the rich to pay far too little.
Wanda, you say this will kill the family farm. Yet in your example, you explain how the kids inherit the farm and then sell it five years later. Didn’t that kill the family farm?
I would actually argue that this proposal from Biden will SAVE the family farm. Because it will enourage the kids that inherit it to, you know, actually farm instead of selling to the highest bidder! Because they know that if they sell, they’ll lose up to 40% of the proceeds to Uncle Sam. That could create a situation where the farm is worth more to them to keep farming it then to sell to a factory farm.
So thanks for raising this issue, but pretty sure you got it backwards. We need family farms and this might be the best way to keep the kids in the game.
Wanda Patsche says
My example of kids inheriting the farm and then selling it in five years was just an example of how the step-up basis works. I would disagree that Biden’s proposal would not save the family farm because as I stated, there is talk that he would like to assess the capital gains tax at the time of inheritance. If this happens, the heirs would more than likely have to sell to pay the taxes. I guess my main point is that we need to stay in touch and communicate with our legislators so they are aware of the issues. We in agriculture have such a minute voice and we need to elevate it as much as we can.
Preston Andersen says
Aside from the tax issue, many family farm sales invole multipe heirs, spaning multiple family generations. With various financial goals and liabilities, there isnt always the option to keep the farm in the family. Basicly the only day in a farmers life he is rich is at the end of the auction before he pays the auctioneer, the realiter, the taxman, and the banker holding the note.
Its not just farms but small family businesses.
If parent worked hard and paid all thier taxes they are getting double taxed because of the estate tax along with capital gains.
Its possible there be nothing left over to maintain the business or farm. Sure there maybe enough money left over for junior to go to vegas and have a good time but the sad thing is business is no more.
People who are not as successful may not care but all this means is less incentive to be successful cause your really making money for the govt .
DT Carruthers says
It’s no secret Biden wants any and all hard earned money from farmers, anybody that inherits anything. We will see. Biden looks too sick to keep the office long. All hail the new revelation and civil war coming.
Damian Watts says
So My big issue with this article is, it starts off misleading about paying Capital Gains on death, which doesn’t exsist, and there is no Official Plan to change that. As well, the 39.5% CG tax is for over 1 million dollars, also very misleading. And Current estate taxes allow for a married family to transfer 23 million untaxed, as well if the farmer lived on the Farm for 2 years and was married they can sell it for up to $500,000 and pay no CG tax. Very very misleading topic, please research better, do not harm or misinform poor farmers of the country, they have enough problems without someone adding fake ones
Wanda Patsche says
You have missed the point of the story. There is talk in Washington DC, Biden’s administration, about assessing capital gains tax at death. You are correct, that is not the law right now but they are looking at ways to gaining more tax money. My main emphasis is for farmers to speak with their legislators to help inform them the situation of keeping family farms.
In the article you ask people to contact Congress to “stop this proposal”. Meaning stop any change and let the current loopholes stand.
It would be more responsible for you to ask your readers to contact their Congresspeople to ask them to consider farms while reworking the Capitol gains tax system. Maybe make an exemption for working farmers.
Otherwise, this article comes off as propoganda aimed to benefit the extremely wealthy who inherit their wealth and not the hard workers of our country.
We need farmers, more of them, but right now we have a bunch of investors buying land for future gains, pricing out a lot of folks who would like to farm. Something needs to change.
Biden himself stated his plan was to raise capital gains taxes from the current mid twenty percent to 40%! It doesn’t just affect farmers. It affects any small businesses that have a plan to sell their business and retire. And the cap is $400,000, not 1 million. So many people think, that doesn’t affect me, so go for it. Even if a small business owner sells his business for $200,000 right now he will get taxes at approx. 26%. Assuming his profit is only $100,000, he would still have to pay $26,000! That is ridiculous!
Wanda Patsche says
Agree! I just wrote it from the agricultural side but it does affect other industries.
I don’t see any relation to income in your analysis of the tax rate. The capital gains tax is assessed by income level, meaning people making less than $440k per year in INCOME would only be taxed at 15% for a long term gain – defined as holding for more than 1 year as you’ve described.
You are misleading people.
Wanda Patsche says
I am sorry that you have missed the point of the story.
So ur basically arguing against a death tax (aka, children NOT pulling themselves up by their bootstraps) or against capital gains taxes when selling a property for millions of dollars.
Im sure most Americans, who never pay capital gains taxes, feel your pain… Those poor poor children inheriting millions or farmer selling their farm for millions… So unfair… they’ll only inherit half a million dollars of farm value they most likely dont want to use and will sell. And that money will go to feeding the poor, healing the sick, fighting climate change, and…well…farmer subsisies, too, right?
In America, where money equals political power, arguing against the death tax or higher capital gains taxes is basically arguing for inheritable political influence and generational oligarch families.
Wanda Patsche says
Well I am sorry that you have missed the whole basis of the story.
I think you are the one who isnt seeing the big picture. You’re seeing the picture as it directly affects you or your buddies. Most Americans do not inherit millions of dollars in assets.
Most americans are helped by the taxes those people pay.
Why should children, who have done absolutely nothing to earn it, get unchecked amounts of money (and political power) given to them? That doesnt sound “conservative” to me…that sounds like the days of surfdom.
People who argue for a death tax or higher capital gains taxes dont argue to tax all of it. They just argue massssssive wealth (and power) shouldnt be generational. How about they pay their taxes and help society function, and then they can pull themselves up by their bootstrap. Inheritance isnt earned, no matter how much those passing it on think it is.
TINA D PEREZ says
Inheritance is earned by the person or people who worked the farm and they shouldn’t be forced to give almost half of their wealth earned to pay taxes. I agree with author of the article and most comments here are totally missing the boat. And guess what? If most Americans are not paying Capitol gains taxes its because they don’t own businesses or rental property that they at one point try to sell. These comments show why most Americans are broke. They separate themselves from those that have to pay Capitol gains taxes when a rental, or business is sold instead of seeing themselves as someone who could be one of the people owning a rental property or business to be sold. I’m not rich. But I have owned rental property and sold it. I’ve paid my fair share of Capitol gains taxes. The proposed tax rate and what is proposed is ridiculous! And for those saying what’s the big deal they didn’t earn it anyways? In a way its true because most of a gain is usually appreciation of the asset but its also the hard work, time and effort of owning a business or rental that is earned. Anyone who says most Americans don’t pay Capitol gains taxes are thinking it’s only the rich and large corporations paying. It’s not. Its anyone who has tried getting ahead by buying one rental property to maybe pass on to their children or to make some extra income in addition to their regular income where they work a full time job. I’ve had many renters leave owing me money or damaging my property thinking I must be rich because I own a rental. Not the case. People need to wake up and see its not about the rich vs. the poor. Anyone can end up paying a lot in Capitol gains if you own just one rental property that has appreciated over the years.
Thomas Paine says
This article was a well written appeal for sane tax policies. (A 39.6% capital gains tax is not sane.) Yet the first response shows the lack of compassion on the part of (likely) underachieving people for the risks that small businesses take. The government did not build these businesses and they don’t deserve the fruits of the efforts people took their whole lives to accumulate. And those of you who, in ignorance, think it does deserve to redistribute other people’s hard work may be the biggest problem our nation faces. Ignorance feeds big government. Wake up. You will not prosper because the government raises other people’s taxes. You may possibly prosper with “sound money” and continued effort. Sound money is worth understanding.
And nobody talks about inflation in this equation.
The reason why capital gains tax is lower is not only because we want to promote risk taking and investments, but also inflation will eat into those gains as well.
Take that $1,500 figure. If the farm was bought in 1980, and sold in 2020, the actual price would be $4,700 adjusted for inflation. So 15% tax on $8,000 – $1,500 is about 30% in real terms.
Add in all the other costs, maintenance, hard work, even 15% would look too much.
The math on the tax calculation is incorrect, and doesn’t understand how marginal taxation works.
Unless there’s a more up to date article or information, the proposed capital increase is “39.6 percent on income above $1 million” . So it’s just adding an extra bracket on top of the current rates. So in the example, only the amount over $1M would would be taxed at 39.6%, not the full amount, as the article states. The amount of capital gains tax actually owed would be ~$219k not $433k
The math on the value on pretax $1.120M long term gains:
0%tax on $0-$40k
15%tax on $40,001-$441,450 = $60,217.35
20% tax on $441,451-$1M = $111,709.80
39.6% tax on >$1M= $47,520
(This is of course based on single filing status, not married filing jointly)
This article makes some very valid points. Yet the ignorance of these comments when related to taxes is stunning. Not a CPA in the group. She’s right on the money with the proposed 39.6% rate on capital gains over $1M. Many business owners, farmers included, spent their whole lives building their businesses and banking on them as their retirement. The government does not deserve 40% of these peoples lives. No one does.
Wanda Patsche says
Thank you and to all the other farmers out there. I appreciate your hard work. I’m not a farm owner or operator but I know enough that farmers are the real professional heroes because we can’t live without food and it takes a lot of sustained grit to farm. I’m for lower taxation of farms and small businesses. If Middle class America collapses, the point1 percent will own 99.99 percent of everything. Bill Gates is now the biggest farmland owner in the United States.
Phillip Kalasz says
If your farm is under an LLC or other business entity then the only thing you have to change if someone dies or whatnot is the members who run the business. This way there is no tax event. You are just changing the members of the business. If you are not doing this you should be.
Thank you. Exactly!
Judy Christians says
LLC will not be a No tax event – there are shares which will be taxed on the value at the date of death – https://www.investopedia.com/articles/personal-finance/071514/using-llc-estate-planning.asp
Well I think the point is it doesn’t happen at the death if the person who dies has no shares at that time; the children have them all. You can gift shares over an extended period so that there is no income on the recipients side at all, but for a large value there would have to be a lot of recipients or a lot of time.
If your neighbors farm came up for sale at 60% under current market value would you purchase it?
As a 5th-generation farmer, I find it absolutely stunning how these folks w/ absolutely no idea of how the food chain works seem to bite the hand that feeds them. I could see 40% of everything I’ve worked for disappear overnight. I’ve worked countless 18 hour days, & have seen hailstorms wind and rain decimate my crops in less than 30 minutes. All because my passion is to feed the American people. In fact, I feed approx 153 people. Why is the federal govt taking 40% of everything I’ve ever worked for??!!!
So many people are oblivious to the fact: When a nation cannot feed its people-and must buy food from other countries, you are no longer a free nation! I guess their thinking is that we can just buy our food from China right?
Yes Mike, you grow food. That does not make you a special flower worthy of praise and special treatment over all other forms of employment. Nor does it replace the fact that someone would replace you in an instant as soon as you put your farm up for sale. Don’t worry, your land will keep producing no matter who owns it. Yes Mike, you work the land. But the land was there long before you or any of your farming ancestors lived there. You do not have some godly rights to it.
Yes Mike, you work long ours during planting and harvesting season. So maybe a month in the spring and a month in the fall. What do you do for 18 hours a day the other 10 months of the year?
Crop Insurance, subsidized by all tax payers, prevent you from being financially decimated due to acts of god. You should be thanking all us non farmers for that. Not to mention all the other subsidies farmers receive courtesy of non-farming tax payers. So forgive us if upon your death we ask that you return a small portion of what we gave you.
So many farmers are oblivious to the fact that the US does not lead the world in food production. We are third in overall production, and not even in the top 50 in food production per capita. If not for tariffs we would be buying more food from China and other top producing ag countries.
Wanda Patsche says
All I can say is wow. I would highly suggest you connect and/or visit a farm. Sorry to say but you don’t have the smallest inkling of what happens on a farm or what farmers do.
Then enlighten me Wanda. Please tell me what hard work you did on the farm yesterday for 18 hours. Give me an hour by hour breakdown. It would be much appreciated.
Your childish insults instantly speak to your lack of intelligence Bill. A special flower huh? Sure, someone can replace me-same as someone can replace you-in whatever it is that you do for a living. I have Godly rights because myself and forefathers PAID for the land. See how that works Bill?
Your comments on the 2 months of the year in which I work 18 hour days is the perfect example of someone spewing mindless drivel. I live in the West and grow crops in the summer, fall, winter & spring. I spend many hours paying taxes. Payroll taxes, diesel tax, property taxes & the list never ends. It’s incredible the amount of time spent appeasing our state and federal govt. See how that works Bill?
I have no crop insurance for 80% of the crops that I grow. The crop insurance that I do have is a flat-fee, based on my coverage per acre, that I pay for with a check. See how that works Bill?
The US may not lead in production, but that’s only because we are limited to the amount of farmable acres. If you look @ production per acre or hectare, we are far and away the highest producers in the entire world. Per capita means absolutely nothing because of the acreage available. You sound like the kind of guy that would prefer to buy your chemically-laden food from China or Mexico. How do I know this? I’ve been to both places and witnessed it 1st-hand. American agriculture has more EPA regulations for pesticides than any country on the planet. See how that works Bill?
It’s readily apparent that you hate America, as well as its farmers. As an American that loves my country and the principles on which it were founded, I invite you to move to Russia or China so you can eat that wonderful communist-grown food, and maybe not have so much anger towards complete strangers on the web.
People like you that ostracize others-when they literally have no understanding of the inner-workings of a business or industry are the problem w/ our country. If your hatred towards farmers is so strong, maybe you should stop buying our products and grow your own?
I have concerns about the decline of the family farm as well, and I appreciate your well written article about this topic. However, the sheer size of the “family farm” has been rapidly increasing over the years due to short-sighted policy. I’m specifically referring to the subsidized crop insurance and direct payments to reduce the business risk to almost zero.
As a result the average “family” farm went from a few hundred acres to a few thousand acres in less than two generations. There is an unbalanced incentive to get bigger vs. the risk of getting bigger. In my opinion this fueled the rapid development of larger machinery and less manual labor. [Sidenote – I grew up on a farm and I’m not saying there isn’t still a lot of hard work necessary to run a farm.] This has led to the population decline of rural towns and schools since 2,000 acres that would support 6-10 family farms a generation ago now can barely support 1-2 families.
Additionally, I do find irony in the hypocrisy of many farmers I know and follow. They complain about these policies as “socialism”, how people on welfare “only want handouts”, and their years of hard work ends in their “wealth being redistributed.”
Apparently it is only unfair if it goes against their business but completely fair to the taxpayer if it helps their business. Case in point (assuming this data is correct) the author of this article has accepted close to $1,000,000 of taxpayer money over the past 20 years, and nearly half of that was in the past 5 years:
Keep in mind these numbers do not include the second half of 2020 OR crop insurance premium subsidies. Many of the larger farms get even more. These subsidies were meant to target small farmers but as usual, businesses found a way to take advantage of loopholes (forming multiple entities, etc.)
To me this is the textbook definition of wealth redistribution. If you sell a farm and have to pay capital gains, isn’t it a little bit fair considering the farm survived and was paid for with lots of hard work, but also with the help of taxpayers?
With all due respect Ray, your comments are misleading. While I agree that there are definitely problems w/ the subsidies in relation to COMMERCIAL farms, the author speaks of family farms. Family farms literally have a 2-6% margin to work with, and that’s regardless of what Mother Nature has to say about their yields, or how many metric tonnes of whatever commodity that the feds purchase from other countries. If our govt would stop buying commodities from Mexico, Brazil & about a dozen other countries, we would have much more stable markets, and could literally do away w/ the subsidies offered now.
Lest we forget the auto-manufacturers and banks and Wall Street being kept afloat by the govt during the last market crash? What does a car manufacturer produce that is essential for each and every American? If I don’t own the latest and most ridiculously expensive (they profit approx $ 30,000 for Each vehicle sold) automobile, does that mean my family will not survive? We are talking about FOOD AND WATER. Spot the difference?
We as farmers throughout the world are expected to Double our production by 2050 in order to feed everyone. How do you propose we do that unless we mechanize harvest & use advanced genetics? You say organic & hand labor? How does a $14 gallon of milk and $12 loaf of bread strike you? Who do you propose actually performs all of this hand labor, and even if we could find enough workers (impossible) we are expected to pay them $ 15/hr? This does not calculate!
You say that 2000 acres only supports 2 families? My family has approx 1800 acres and we support 10 families.
Lastly, to your point of selling a farm @ the 40% rate on capital gains….that means you’re ok w/ the same right? Meaning when you sell your house, or any real estate that you will be rushing to the IRS to pay your fair 40%?
Kent Fickel says
Yes this article was written with the farm communities in mind but the issue affects everyone in the country who owns capital assets. Imagine how some people will feel when they find out that the gains on the stock portions of their retirement accounts get hit by this. Please be aware that all segments of society and business are intertwined and affect all of us. A friend of mine educated his residential tenants to this when they all voted for a large bond issue which ultimately raised his tax bill. When he portioned that increase out to their rent increase they went ballistic. He just sent them all a written detailed account of what their vote actually cost them. They hadn’t felt that the tax increase would affect them because they didn’t own a home.
Well said Kent.
Roger Stoick says
My thoughts. Why is there a capital gains tax at all? If you buy something, and make a gain on a personal (vs business) asset, you shouldn’t have to pay a tax. If you lose money on a similar transaction, you get a $3000 per year deduction, or none at all.
The tax.code has become a social engineering tool, and not a vehicle to collect tax appropriately and fairly.
People are so disconnected with what made this country so GREAT! Family farms are the backbone of the American way. The last administration’s policies were to help protect the hard work families performed over the years and not just hand it over to the government when they die. and for those thinking farmers pay nothing to farm are just ignorant of the life of a farming family. It costs a lot of money to run a farm that produces food for many and just enough money to live on. It takes equipment to farm land it takes perfect weather to produce a good crop. Back to back seasons with bad weather can destroy the economic health of farm depending on it to pay back notes on mortgages, equipment, labor, contracts. It takes trade policies that benefit the farmers, not China.
Do you have any idea of the cost for just one, used, 300+ HP tractor. It could easily cost more than $400k. And a farm that grows product on a large scale may have more than one to do the many jobs required to farm land. A large farm could easily have over a million dollars tied up in equipment, before it plows one acre. Oh, and that’s just the cost of the tractor. There’s the cost to fuel them (diesel), cost to maintain them all while trying to pay for them monthly (like a car payment) only they have no assurance of funds to do that if the land does not produce or is lost. Ever change your own flat tire on a car. Try it on a tractor that has tires taller than you! Oh and just like you they have house payments, vehicles, insurance, if you can get it, kids clothes, school, laborers and so much more. Farmers are not rich because they have land. They may have large amounts of cash flow, but it’s what’s left at the end that tells the story. Remember, farmers get paid one a year. The rest of the time is spent on budgeting the unpredictable.
Any of you out there working hard to live and save up wealth (of any size), for retirement or to leave to your children should consider what is being proposed by the new administration. If you are ok with giving it to the government, you might be the problem.
How do you define the difference between a family farm and a commercial farm these days? My dad had cousins that were brothers. The brothers inherit the farm from their dad. They had big families. Now the two brothers are gone, and it’s their kids (cousins) who are farming 2000+ acres and one of the biggest hog producers in the midwest. There are multiple LLC’s that hold the assets. I’ve heard it’s a big cluster of a mess.
So I’m curious, is that a family farm, or a commercial farm? It was a family farm 60 years ago. Now it sure looks commercial to me.
It’s not your business. This is their farm
You may want to look into putting the property into a trust, that your children take control of upon your passing. The trust never “dies” and is a separate legal entity from you or anyone else, yet you maintain 100% control. You’d only have to deal with capital gains if/when the *trust* sells the property. Theoretically you could keep the farm in the family for generations without ever transferring ownership. The trust always owns it, but the heirs continue to control it.
Talk with a lawyer who specializes in estate planning, setting up legal business entities, and/or asset protection. There’s already several legal options available to you to make this “death tax” a non-issue.
Wow Wanda😳 Think u might have touched a nerve somewhere. The TROLLS have been let loose on u!! JUST the other day I saw Bill Gates now owns the most farm land in the US. Crazy, huh? Now I Know he is a friend to this SELECTED administration… Also remember hearing something about China wanting to use our land for their farming … Idk any details on that… But draw ur own conclusions. I did 😁
PS: Thank you for ur earnest work and for being an example of America…
Come on people, writing your congressman is pointless. Are you telling me that somebody actually thinks that this is a good idea? The game is rigged nobody’s for the people. Who in their right mind would think that this would help anybody how many family prosper and thrive? You think a congressman needs a letter for him to realize this? You people are drunk with the Kool-Aid.
Actuallu the tax code has a disproportionate number of benefits for the average family. I’m not saying it should be otherwise, just that your cynicism is at least misplaced. The first $250k of a person’s gain on a home sale is tax free ($500k for a couple). The largest $ recipients of this benefit is the middleclass. The standard deduction is proportionately higher for lower income earners. Progressive marginal tax rates obviously put more of the funding responsibilities on the higher income earners. (I never understand the argument that the rich need to pay more of their share when they’re the ones paying more than their share according to tax collection data. I’m not arguing it should be otherwise, it’s just not an accurate portrayal of who pays what.)
I contest the notion that middle-class Americans have no influence over public policy. Middle-class Americans aren’t a homogenous group that wants the same policies.
I can understand not wanting to pay taxes, hardly anyone does. I don’t understand however why this proposal would prevent heirs from taking over the farm if that is what they want. If the heir doesn’t have the cash for the tax can’t they simply get a loan on the land and pay it off over time?
Thank you for the article Wanda! It is well written and understood! There will always be a few knuckleheads seeking to argue, but you did a great job!
Geza Wass says
Capital gains on property is such a rip off. If property is purchased in 1950 at $200.00 per acre and sold in 2000 for $2000.00 per acre there is no capital gains if cost of living and properties cost that much to purchase 50 years later. Capital gains should only be considered if the property value increased because of land use changes. Land changes from agriculture land to commercial land, or a highway has been built through the property providing new access, etc. The current capital gains has no consideration of inflation, cost of living, etc. Today you can’t buy raw land for the same price as 50 years ago, annual income isn’t the same as 50 years ago, gas prices aren’t the same as 50 years ago. These all should be added into the capital gains assessment.
A bank will happily give anybody a loan for the taxes needed on the estate, and you always have the option of collateralizing the land against a loan in order not to sell.
With this being said… I think its very strange how half the people in these comments think that they have a say in what other people should do with the wealth they and their family acquired. Why is the successful, hardworking American the bad guy/gal? Also, what has to be going on in your head to think you have a say in what somebody else worked so hard for? I can understand eliminating the step-up in basis, but the tax shouldn’t be due at the time of death.
I work with a lot of young, successful clients who are sacrificing their time, and money to get in a better financial position for themselves and their future. It absolutely sickens me thinking that they will passing this wealth to others that are less deserving.
That screams socialism.