Tax laws

Keep an eye out for: Agricultural Tax Law Changes Expected in the Build Back Better Bill

With ranchers, farmers and businessmen juggling the fallout from the pandemic, supply shortages and rising costs, there is another ball that can be thrown on the circus scene: the modifications. federal taxes.

Some lawmakers have proposed several federal tax changes that would affect the agriculture industry and small businesses.

Some of them were eliminated from previous versions of the Build Back Better Act, and some were not.

Nothing is totally final until the President’s Build Back Better bill is passed, but the inheritance tax (often referred to as the “death tax”) has been changed in the version of the bill. from the room.

At present, a person can transfer a total of $ 11.7 million through his estate tax free; any amount greater than that imposed by the federal government. This amount was increased in 2017 and was due to expire in 2026, reducing the exemption level to $ 5 million per person ($ 6 million, adjusted for inflation.)

The new legislation changes the date from 2026 to January 1, 2022, with a forty percent tax on the amount over $ 5 million subject to federal taxes that must be paid within nine months of death.

Talking in millions of dollars seems out of the realm of the average farmer or rancher, but estates can include the total value of a farm or ranch, which, when land and equipment are included, often reaches or exceeds this amount. And with the increase in land values ​​due to the strength of the real estate market, it is easy to get real estate values ​​in the millions of dollars.

It’s hard to say at this point whether the inheritance tax date change will remain in the Build Back Better bill when it goes to the Senate, said Aaron Britt, director of communications for Randy Feenstra, representative. from Iowa’s Fourth District and Republican who sits on the House Committee on Agriculture.

The Build Back Better bill is now before the Senate, said Britt, who will lead her own round of negotiations, and major changes are expected.

The representatives of agriculture and the senators were able to stop the addition of the removal of the increased base.

When a person sells real estate, he is taxed on the amount of his capital gain since the date of purchase.

The base of the increase works as follows: when a person inherits a good, it is taxed as if the heir had bought the good on the day of the death of the person who had given it to him; tax is only paid on the increase in value during the time they have owned the property. This increase in the base reduces the capital gains realized by the heiress generation; if the increased base is removed or a tax on the base is imposed, it will have a big impact on the transfers of farms and ranches to the next generation.

Another looming farm tax is not, as of yet, included in the House’s version of the Build Back Better bill.

Similar swaps are a tax-deferred transaction that allows the sale of one asset and the purchase of another similar asset, without generating a capital gains tax bill from the sale of the first asset. .

Similar exchanges are also known as 1031 exchange, after Section 1031 of the U.S. Tax Code.

A similar example of an exchange could be when a farmer owns a parcel of farmland, but finds a better parcel that he would like to buy. If he wants to buy the new coin, he can sell the original coin and use that money to invest in the best land, deferring capital gains and not being taxed on the difference until the second property is sold.

Close. Biden proposed to cap similar trades at $ 500,000, meaning that capital gains taxes would be assessed on the amount greater than $ 500,000.

Not only is the cap on similar trade a problem, said Gary Wynne, legislative assistant to Representative Feenstra, but high land prices make it even more threatening.

“This is the problem we’re seeing right now,” Wynne said, “with soaring land prices. It doesn’t take a lot for a farmer to buy a property, reinvest and make a sizable gain.

The cap on similar trade has been removed from the legislation, but Wynne and Britt say changes to agricultural tax laws will continue to emerge.

“It will be an ongoing conversation,” Wynne said. “Between the exchanges of the same nature and the increase in the base, it seems that these are two things that are put in place to pay for the spending priorities.”

There is still a chance that the base increase and similar exchange tax changes will be included in the Build Back Better Act.

The law was passed by the House but is now in the Senate and will likely see major changes before it is passed, using the reconciliation process, Britt said. The reconciliation process only requires a simple majority, 51 votes, instead of the usual 60.

The Build Back Better Act is just one of many major bills the Senate has to deal with, Britt said, ahead of the Christmas recess, including the debt ceiling and the National Defense Authorization Act, the bill said. of annual military financing law.

It’s good to stay tuned for any upcoming tax changes, Britt said.

“I would say it’s really important not to take your eyes off the ball here. There is no guarantee (that tax increases) will not be included. We will always be watching it very closely. It’s definitely something to watch out for, ”he said.