Agriculture and Tax Reform

Running a farm or ranch business is challenging under the best of circumstances. Agriculture operates in a world of uncertainty—from unpredictable markets to fluctuating farm business costs, to weather disasters and disease outbreaks. Farmers and ranchers need a tax code that provides certainty and recognizes their unique financial challenges as they work to provide a secure food supply for our nation.

While important strides have been made in recent years, such as the 2017 passage of the Tax Cut and Jobs Act, many important tax provisions are set to expire in 2025. Farm Bureau supports renewal of several key provisions and other tax code changes to provide stability and security for America's farm and ranch families.

Passage of the Tax Cuts and Jobs Act in 2017 benefitted most farm and ranch businesses and has allowed them to build their operations and stimulate the agricultural economy. Important provisions include reduced tax rates, the new business income deduction, provisions to allow the matching of income and expenses, immediate cost recovery and an increase in the estate tax exemption.

The USDA Economic Research Service estimates that “the expiration of the temporary provisions of the ARPA and TCJA would increase farm households’ Federal income tax liabilities by $8.9 billion and estate tax liabilities by $647 million in the year following expiration.”

The Tax Cuts and Jobs Act contains many new, permanent provisions that help agriculture.

• Sect. 179 Small Business Expensing Increased to $1 million
• Indefinite Carry Forward of Deductions Indexed for Inflation
• Depreciation for Farm Equipment Shortened from 7 to 5 Years.
• New Flat 21 percent Corporate Tax Rate
• Repeal of the Corporate Alternative Minimum Tax (AMT)

Farmers and ranchers rely on tools in the tax code like stepped-up basis to ensure the long-term sustainability of their businesses. They borrow and invest large sums of money in capital assets like land, buildings and equipment in order to produce our nation’s food, fuel and fiber. Such high upfront costs are standard across agriculture, come with significant financial risk and can present roadblocks, especially to beginning farmers and ranchers. Farmers and ranchers understand that any return on their investment will not come immediately, and it’s a risk not many people can take.

Capital gains taxes are paid when a business—including a family farm or ranch—sells a long-term capital asset, such as land. The tax is based on the amount that the asset has increased in value since purchase. Thanks to a special provision in the tax code, however, capital gains taxes are not imposed when assets are transferred to an heir after the death of a loved one. Tax law also allows the heir to increase, or step up, the basis of the inherited assets to fair market value without paying capital gains tax.

Eliminating stepped-up basis, whether by tax at death or carryover basis, will hurt family farms and ranches and limit job creation. In the U.S. today, many family farms are third, fourth, fifth generation – sometimes more. It would be unreasonable to ask a young farmer who inherited land purchased by  grandparents or great grandparents to pay taxes on the amount the land has increased in value over multiple generations. Some family farms go back to the turn of the century. Imagine asking a farmer to pay taxes on the increase in land values from 1900 to 2024.

Repealing stepped-up basis by imposing capital gains taxes at death would force many family-owned farms and ranches to liquidate assets to pay the taxes. This new tax would be imposed on top of any existing estate tax liability, essentially creating an unthinkable second tax at death.