Ag Policy Blog

Ag Groups to Congress: Don't Change Stepped-up Basis

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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In a letter to congressional leaders, 40 agricultural groups wrote that Congress should not pass any tax bill that would change how stepped-up basis is granted to heirs. The farm groups also want to maintain Section 1031 like-kind exchanges on real estate and maintain the Section 199A qualified business income deduction. (DTN file image)

Agricultural groups have written congressional leaders, urging lawmakers to maintain tax benefits that encourage the transfer of land from one generation to the next.

The letter was signed by 40 agricultural groups and went to Senate Majority Leader Chuck Schumer, D-N.Y., Senate Minority Leader Mitch McConnell, R-Ky., House Speaker Nancy Pelosi, D-Calif., and House Minority Leader Kevin McCarthy, R-Calif.

The agricultural groups are especially worried about President Joe Biden's proposal to eliminate stepped-up basis on inherited assets above a proposed $1 million exemption for an individual, or $2 million for married couple. While the White House has stated that protections would be created so a family farm or business would not have to pay capital gains on a farm or business if the heirs continue to operate it, the proposal still raises concern with farm groups.

Biden's plan revolves around increasing the capital gains rate from 20% to 39.6% for people with more than $1 million in income. But for the plan to generate more federal taxes, an analysis from the Wharton School of Business last month showed it must be paired with an elimination of stepped-up bases on those assets. Raising the capital-gains tax and eliminating stepped-up basis could generate $113 billion in new taxes over ten years.

In their letter, the farm groups specifically ask lawmakers to preserve the stepped-up basis provisions. The letter states there are four times as many farmers ages 65 and older than there are under age 35. Those older farmers own more than 40% of the agricultural land in the U.S. The farm group stated more than 370 million acres of land are expected to change hands in the next two decades so policies being made now "will determine agricultural producers' ability to secure affordable land to start or expand their operations." The agricultural groups said the current estate tax exclusions -- now at $11.7 million per individual -- must be maintained.

The letter states federal tax policy should help facilitate the transfer of agricultural land to family-owned operations. "Because assets in agriculture are typically held by one owner for several decades, resetting the basis on the value of the land, buildings, and livestock on the date of the owner's death under a step-up basis is important for surviving family members and business partners to ensure the future financial stability of the operation," the letter states.

An exclusion from the capital-gains at death for agricultural operations "may be well-intentioned," but "this obligation could still discourage the sale of farmland, depending on its implementation -- potentially increasing the cost and further limiting the availability of farmland. Such unintended consequences could result in greater barriers to access for new, expanding, and underserved producers alike. As currently outlined, we remain opposed to repealing the step up in basis and to imposing new capital gains taxes on family farms and ranches when there is a death in the family."

Farm groups also call for the continuation of the Section 199A business income deduction, which allows a 20% deduction for non-corporate taxpayers, as well as retaining Section 1031 like-kind exchanges on real estate.

Letter to lawmakers…

Last week, a group of rural Democrats also wrote House leaders calling for specific language to exclude farmers and small businesses from any changes to inherited basis.…

DTN also looked recently at how tax code changes -- including the change in the Section 199A -- are shifting farmers out of C corporations:…

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