Lawmakers introduced a bill that could provide a permanent solution to a generational issue.
The National Cattleman’s Beef Association says that it supports the Preserving The Family Farms Act.
The Preserving Family Farms Act of 2021 was introduced by U.S. Representatives Jimmy Panetta (CA-20) and Jackie Walorski (IN-2). NCBA has long supported efforts to reduce undue tax burden on farmers and ranchers. This bipartisan legislation to expand IRS Code Section 2032A would allow cattle producers to take advantage of the Special Use Valuation and protect family-owned businesses from the devastating impact of the federal estate tax, commonly referred to as the Death Tax.
“We thank Representatives Panetta and Walorski for their leadership and dedication to protecting future generations of agricultural producers through the introduction of the Preserving Family Farms Act of 2021,” said Jerry Bohn, NCBA president.
The Preserving Family Farms Act increases the maximum amount allowed under the Section 2032A exemption from $750,000 to $11 million (indexed for inflation), thus reviving a critically important tool in the toolbox for farm and ranch families across the U.S. If enacted, this legislation will provide a permanent solution to an issue that has long plagued our nation’s cattle producers.
“America’s farmers and ranchers deserve certainty in the tax code overall, and they need certainty especially when it comes to the estate tax. Without it, transition planning for the next generation of producers is nearly impossible,” Bohn said.
In the Tax Reform Act of 1976, Congress recognized the disproportionate burden of the Death Tax on agricultural producers and created Section 2032A as a way to help farmers keep their farms. However, the benefits of Special Use Valuations have been stymied over the years as the cap on deductions has failed to keep pace with the rising value of farmland.
While the current 2032A reduction is 55 percent higher than the value established two decades ago, USDA estimates that cropland values have increased by 223 percent. Agricultural land values – including on-farm buildings – have also risen dramatically, increasing by 241 percent during this same period. Due to the rapid inflation of farmland values, the 2032A deduction is no longer aligned with the needs of modern agriculture – nor does it accomplish Congress’ intended goal of providing meaningful protection to those producers who are most vulnerable to the estate tax.
A Farmer’s National executive is sounding the alarm about a potential tax law change that could force multi-generational farms to sell.
Randy Dickhut says that if the Biden administration does away with stepped-up basis or reduces the estate tax exemption, it could force more farm families to sell off land.
For example, if you die, the value of your land would be the current market value, not what it was when you bought it or inherited it. It will also be taxed accordingly.
Dickhut says that in Canada, where the capital gains tax is paid upon death, some retired Canadian farmers sell land because they do not want to force the estate to pay the fee, or cannot afford to.
President Biden has proposed cutting the estate tax exemption of more than $11 million dollars in half.
According to AFBF’s John Newton, “If we don’t get a permanent extension of the $11.58 million dollars, or we go back to a lower exemption level, that really risks the family farm operations across the country.”
Based on 2020 data, it would take about 3,700-acres, or three Mount Rushmores, to reach the current estate tax exemption.
“If you have asset values that are above that $11.58 million dollars, those are going to be subject to the estate taxes, which can be as high as 40 percent,” Newton states. “If we potentially lower the estate tax exemption to $3.5 million dollars, or an inflation adjusted $5 million dollars, we’re looking at more assets out there being subjected to additional taxes, and some are looking at that as a ‘pay for’ to pay for other policy objectives.”
Estate taxes, also called the “death tax” by critics, are particularly concerning to farmers and ranchers, because they are based on market value, often forcing families to liquidate assets to meet their tax obligations.
“A lot of folks often point out that it’s a small percentage of the farm population across the country that would be subject to these estate taxes, but when you look at USDA data, it’s actually a large percentage of agricultural land area in this county that could be subject to these estate taxes upon death,” he adds. “We urgently need a fix to help and protect the family farm operation.”