Tax changes impact decisions for farm families

MOUNT VERNON, Iowa — Preparing for taxes and the transition of farming operations from one generation to the next is important for farm families.

“The standard deductions have been increasing slightly over the last several years,” said Allison Bishop, farm manager with Hertz Farm Management.

For 2026, the standard deduction for a single person is $16,100 and for married people filing jointly it is $32,200.

“The One Big Beautiful Bill Act raises the standard deduction for seniors, 65 years and older an additional $6,000 from 2025 to 2028,” said Bishop during a webinar hosted by American Agri-Women. “It phases out for individuals making over $75,000, or if you are married and filing jointly, over $150,000.”

For capital gain taxes, Bishop said, there is a difference between short-term and long-term capital gains.

“The IRS considers it a short-term capital gain if you own the asset for one year or less,” she said. “If you own the asset for over one year, it is considered a long-term capital gain.”

This tax is for assets that are sold as a profit.

“That would include shares of a corporation, investment properties such as farmland, rental properties, crypto or collectibles,” Bishop said. “Your main residence is exempt from capital gains rates.”

There are several tax-deduction tools that farmers can use, including net operating losses.

“There are some new changes where it can only be carried back for two years,” Bishop said. “And it is limited to up to 80% of the taxable income of those two years that the net operating loss can reduce your taxable income.”

“If you are showing multiple years of net operating losses, they might start having questions about what is going on,” she said. “It is not something you want to happen every year.”

For capital losses, there are some slight changes where it can be carried back three years, Bishop said.

“But you can only capture 50% of that taxable income,” the farm manager said.

“If you are a landowner and cash rent your land, you do not qualify for the Section 179 deduction, but farmers do,” she said. “Famers can deduct qualifying property on their taxes, but they cannot purchase property from a related party.”

This deduction cannot be used for machine sheds or multiuse buildings.

“It is for more single-use properties like grain bins, hog confinement buildings or chicken buildings,” Bishop said.

Before the One Big Beautiful Bill Act was passed, bonus depreciation was phasing out.

“But the bill increased it back to 100% and this deduction can be utilized on used equipment,” Bishop said. “However, it still does not quality if you are purchasing from a related party and it is available through 2031, so there is the potential it could sunset again.”

The 2025 tax bill made the individual tax rates permanent.

“The bill also included deductions for taxes up to $25,000 on tips earned if your adjusted gross income is below $150,000 as single,” Bishop said. “You can also have deductions for overtime up to $12,500.”

For those who purchase a personal vehicle and have a loan, they can deduct up to $10,000 of the interest paid for the year if their adjusted gross income is below $10,000.

“Stepped-up basis continues and portability,” Bishop said.

“You have $15 million of estate tax exemption per individual, and if one of the spouses passes away, you can elect with a form that the $15 million goes to the spouse,” she said. “So, when the second spouse passes away, that person will have up to $30 million estate tax exemption plus inflation.”

For estate and transition planning, Bishop recommends families build an advisory team.

“That team may include an account who helps outline tax-saving tools, an attorney to put together formal documents and we like to have the banker involved,” the farm manager said.

“Also have your agronomist on your team to help make sure things are taken care of,” she said. “And have your family involved so they understand the plan.”

Bishop highlighted some differences between wills and revocable trusts.

“A will requires probate, which is a public process where all your assets will be shown,” she said. “There is a cost to administrate it, but it is less expensive to set up at the forefront.”

A revocable trust does not require probate, it is a private filing.

“It is more expensive to draft, but it is faster to administer after you are gone,” Bishop said.

Anyone who has a revocable trust for their estate should also have a pour-over will, the farm manager said.

“The pour over will automatically includes any assets you might have forgotten to put into the trust and avoid probate,” Bishop said.

“When doing your estate planning, take an inventory of your assets and look at your family dynamics of off-farm and on-farm heirs,” she said. “Include the next generation when making plans so they understand what is going on.”