Farm Bureau is opposing plans in Congress that would tax unrealized capital gains at death and eliminate the stepped-up basis on those capital gains, warning that the move could force many family farms out of business.
Enacting those changes would result in a significant tax burden for agriculture, putting at risk the ability of family farms to remain financially sustainable as they continue to the next generation.
“Taxing capital gains when a loved one passes away would have a devastating impact on farm and ranch families, even more so if the stepped-up basis tool is taken out of the toolbox,” American Farm Bureau President Zippy Duvall said. “Stepped-up basis encourages families to grow their businesses and pass them on to another generation, and elimination could force those families to sell their farms just to pay the taxes.”
Stepped-up basis enables farms to reduce the burden of capital gains taxes by resetting the value of an asset when it is transferred between generations. It’s especially important in agriculture because assets, such as land, are often held for decades and passed on from generation to generation.
Currently, the capital gains taxes on the stepped-up value of an inherited asset are deferred until that asset is sold. So if capital gains are taxed at death and the stepped-up basis is removed, the next generation inheriting the farm could be forced to pay taxes on the increase in value over generations.
“The value of many farms is tied up in land and equipment,” Duvall said. “Cash flow on most farms is much too small to pay large capital gains taxes. These taxes would cause further consolidation in agriculture with small farms more likely to be forced out of business by the tax liability.”
In Pennsylvania, the average cropland value has increased 168 percent since 1997, resulting in an estimated capital gains tax of $890 per acre. In that scenario, the capital gains tax would be close to 10 times the average cash rental rate.
Make your voice heard!
Members of Congress need to hear from the farmers they represent how taxing capital gains at death and eliminating the stepped-up basis would be devastating to the future of Pennsylvania’s family farms. Make your voice heard by responding to PFB’s Action Alert.