June 15, 2021

The Zipline: Family farm legacy threatened by proposed tax increase

If you work in agriculture, you know it’s not just a way of life — it is life. The farms we live on and operate become as much a part of our identity as our last name or our ancestry.

I, myself, am a third-generation farmer. I have tried to uphold my family’s legacy with hopes that my children will do the same after I’m gone.

But the next generation of farmers faces a severe challenge if a proposal in the U.S. Senate is passed. The Sensible Taxation and Equity Promotion Act would eliminate the stepped-up basis tax provision and tax capital gains at death.

Tax issues can be complicated, and many people’s eyes glaze over when taxes are discussed, but this is important. This could mean the difference between a thriving farm or your children being forced to sell off that farm bit by bit.

This is how stepped-up basis works. When you pass away, your children inherit your farm. As it stands now, the value of the farm is set at the time of the inheritance. If your children choose to sell, they face capital gains taxes on the increase in value since they took ownership.

If stepped-up basis is eliminated, they would be forced to pay taxes on appreciation from the previous generation plus appreciation during the time they’ve owned the operation. In some states, that could mean taxes of more than $1,000 per acre.

What’s worse, there is talk of instituting a “tax at death,” which would force your children to pay capital gains taxes once they have inherited the farm.

Imagine dealing with the loss of a loved one and then being forced to take out expensive loans, or worse, sell the farm your parents spent their lives protecting, just to pay the taxes. “Tax at death” would be in addition to any estate taxes due, so the impact would be especially damaging.

The senators who proposed the STEP Act call stepped-up basis a “loophole” that provides “an unfair advantage to the wealthy heirs every year.” But, make no mistake, collecting capital gains taxes at death amounts to a tax increase on the middle class.

Wealthy Americans have teams of attorneys and accountants who can figure out how to protect assets. Middle-class Americans don’t have those resources.

The value of a farm is tied up in land and equipment and very few of us have the available cash to pay these increased taxes while keeping the farm running.

This isn’t just an agriculture issue. Eliminating stepped-up basis will affect small, family-owned businesses across the country — from the local pizza shop in town to the homebuilder and really any American wanting to pass on family assets to the next generation. In fact, a recent study shows eliminating stepped-up basis would cost the economy $10 billion and 80,000 jobs a year.

American Farm Bureau is working with lawmakers to help them understand that this plan will kill small businesses, lead to more consolidation and ultimately force people out of their jobs.

We urge you to get involved, too. Contact your senator and representative and ask them to protect hardworking Americans who want to pass their success on to the next generation.

Zippy Duvall

Zippy Duvall, a poultry, cattle and hay producer from Georgia, is the president of the American Farm Bureau Federation.