Estate taxes can be a barrier to passing down farms to future generations by draining the financial resources of farmers and ranchers to meet tax obligations.
The Tax Cuts and Jobs Act of 2017 temporarily doubled the estate tax exemption from $5.5 million to $11 million per person; however, this provision is set to expire in 2025. The current – but temporary – tax exemption of $11 million per person has allowed farmers and ranchers to expand their businesses, upgrade buildings, and purchase needed equipment and livestock, rather than spend their money on estate planning. More importantly, when a family member dies, the family can continue farming, without having to sell land, livestock, or equipment to pay the tax.
In Western states, families tend to operate larger farm operations, and despite lower average farmland values, more of the farms and most of the acreage in the estate would be subject to estate taxes when the property is transferred following death. In these areas, the largest family farms would be more likely to have to liquidate assets to meet their estate tax obligations. In some Western states, more than 90% of the acres operated to produce high-value specialty crops, dairy and tree-nuts could be impacted by estate tax provisions.
According to USDA-NASS Agricultural Land Values, USDA Census of Agriculture, and Farm Bureau Calculations, if we were to revert back to the 5.5 million exemption per person, the number of Arizona farms that would need to pay the estate tax would increase from 7% to 11%.
Eliminating the estate tax – or at the very least, making the current higher exemption permanent – would benefit young farm and ranch families and beginning farmers, making agriculture more accessible to all. Our family-run businesses need a tax code that encourages family farms, rather than undermining their success!
To make matters worse, yesterday members of the U.S. House and Senate introduced legislation to end stepped-up basis and impose capital gains taxes at death. The bills treat property transferred by gift or at death as if were sold for its fair market value. While the legislation includes an exclusion for up to $1 million dollars of gain, this new capital gains tax at death would be applied on top of existing estate taxes. Therefore, both the new capital gains tax and existing estate taxes would be collected when a farm or ranch owned dies.
This is why the Arizona Farm Bureau is asking farmers and ranchers to urge your U.S. House and Senate members to eliminate the estate tax. Click here to tell your members why you support the repeal of the estate tax. And don’t forget to thank your representative if they are already a cosponsor of the estate tax repeal legislation!
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