By Jim Mundorf
“The great searcher of human hearts is my witness, that I have no wish, which aspires beyond the humble and happy lot of living and dying a private citizen on my own farm.”— George Washington
I don’t care who you voted for, or your thoughts on the election. Joe Biden is the President and as much as I try to stay out of politics, his proposed tax plan is now the greatest threat to destroy family owned farms and ranches that America has ever seen. According to Farm Progress Magazine, “Biden has two features in his (estate tax) plan, and one is unfortunate, but the other is disastrous for farmers.”
Land Rich Cash Poor
Over the past 20 years agriculture land prices have skyrocketed. In my neighborhood, (southwest Iowa) farm ground has gone from around $900 per acre in the ’90s to well over $7,000 per acre now. Farms that were were a few hundred thousand, 25 years ago, are now worth millions. So farmers have found themselves in a unique position. If they own the land they work on, they can keep working for an unstable living that is always dependent on the weather and markets, or they could sell out and become multi-millionaires. For most people this seems like it would be an easy decision. For most farmers they don’t think twice about it…they stay, and keep working.
So why do they keep it? A big reason for keeping the farm has always been to pass it on. And now that there are fifth, sixth, and seventh generation farmers and ranchers around. Passing the farm down to the next generation has become a sacred tradition. The end goal of a life’s work. As Paul Harvey says at the end of his speech, turned commercial,
Somebody who’d bale a family together with the soft strong bonds of sharing, who would laugh, and then sigh, and then reply, with smiling eyes, when his son says he wants to spend his life ‘doing what dad does… So God made a farmer.
Unfortunate and Disastrous
Unfortunate – The “unfortunate” part of Biden’s proposed tax plan is the elimination of the stepped-up basis. The stepped-up basis has been used for all inheritance for generations. How it works is that when property is inherited, it doesn’t matter what the dead person paid for it, the value is stepped-up to what it is worth at the time of the death. This allows the person who is inheriting the property to show no gain in income from the inheritance.
Biden’s tax plan would remove the stepped-up basis. According to the Forbesarticle, Biden’s Tax Increase On Death That No One Is Talking About, “Biden’s tax plan calls for carrying over an asset’s tax basis from the the decedent to the next generation. No amount of estate tax exemption would help you, because this is a big income tax increase.” That income tax increase would destroy practically all small family run farms, because it would simply be too much to pay without selling out.
Example – Let’s say you are the son or daughter of a farmer and have worked your whole life on your father’s farm with the hopes of taking it over when he kicks the bucket. Your Dad inherited a portion of the farm from Grandpa in the 1990s, and he bought his brothers and sisters out for $900 per acre. His dreams have come true, and he now he owns a thousand acres that you guys farm together. Now that land prices have shot up, his farm is now worth $8,000 per acre. When Dad croaks, with the stepped-up basis in place, the value of your farm is stepped up to current land values when you inherit it, and no gain in income is shown. Under Biden’s plan the stepped-up basis is gone, and you are looking at showing a gain of income that is the difference between the price of the land when your Dad bought it and the price it is now. On 1,000 acres you are now showing a gain of $7.1 million dollars.
Disastrous – Right now you can only pay taxes on inherited property that you sell. The truly, “disastrous,” part of Biden’s the plan for farmers, and everyone else, is combining the removal of the stepped-up basis with taxing “an asset’s unrealized appreciation at transfer,” meaning you will be taxed on the value of inherited property whether you sell it or not. Read Full Article >