Ag Policy Blog

House Ways & Means Committee Chairman Jason Smith, R-Mo., repeatedly noted during the debate on his tax provisions in the "One Big Beautiful Bill" that preventing a drop in the estate-tax exemption would save every family farm. All 2 million family farms would benefit from a permanent fix, he said.

"Families would not have to sell the farm just to pay the IRS," Smith said.

Under the 2017 tax law, the current estate tax asset exemption is $13.99 million for single people and $27.98 million for married couples. The budget reconciliation bill raised the single exemption to $15 million and the asset exemption for married couples would go to $30 million. Increases to the exemption later on will be tied to inflation.

As stated before, the estate tax is much broader than farmers. Farm assets generated just under $650 million in estate taxes in 2022, the last year data is available, out of $22.5 billion paid by estates overall. Less than 3,200 estates nationally paid estate taxes in 2022 with 379 of those estates reporting farm assets.

The House, however, missed an opportunity in its giant tax bill to help farmers more with their estates. The tax bill doesn't do anything to change Section 2032A, a special use valuation in the tax code that specifically allows farmers to use an alternative method for valuing their farm ground. Under Section 2032A, land value can be based on the actual use of farming rather than its fair market value.

One of the long-standing complaints about the estate tax is that farmland values have risen faster than the estate tax asset exemption levels.

Unfortunately, Section 2032A has a $1.42 million cap. The cap has slowly crept up in value over the past couple of decades. In fact, it has doubled in value since it was first introduced at $750,000 in 1997, but it hasn't kept up anywhere close to the growth of land values.

Average national farmland values per acre have grown 350% since 1997, based on USDA's Land Values report released last August.

A pair of House members, Reps. Jimmy Panetta, D-Calif., and Mike Kelly, R-Pa., in 2023 had introduced a bipartisan bill that would have raised the Section 2032A land valuation to help producers avoid the estate tax, but the bill never went anywhere. Zippy Duvall, president of the American Farm Bureau Federation, noted in a 2023 news release on the bill that it would provide targeted estate tax relief to farmers, ranchers and other family businesses. The National Cattlemen's Beef Association also backed the bill.

A Nebraska cattle producer this week who attended an event with Secretary of Agriculture Brooke Rollins pointed out the lack of movement on Section 2032A and explained raising the cap on land valuation would go a long way towards helping producers with their estate assets.

GREEN ENERGY AND THE RECONCILIATION PACKAGE

The Washington Post reported the bill would eliminate $522 billion in tax breaks for renewable energy nationally.

The House bill strips away incentives for wind, solar production and electric vehicles.

This will be considered one of the major conflicts as the bill moves into the Senate. Republican senators are going to have to decide if they want to cut off funding for projects in their states.

45Z SURVIVES

Biofuel advocates celebrated that the 45Z Clean Fuels Production Tax Credit remains in the budget reconciliation package with an extension pushing it out to 2031. Under the CBO, biofuel producers would expect to generate $45 billion in tax credits.

The bill language also blocks companies from receiving the tax credit if they are using foreign feedstocks such as used cooking oil from China. The bill also helps biofuel producers qualify for the tax credit by removing rules that factor indirect land use changes for biofuel production.

The Renewable Fuels Association and Growth Energy both thanked lawmakers for keeping the 45Z tax credit. The group Americans for Clean Aviation Fuels also stated the group is encouraged that the 45Z not only will remain but get an extension.

45V CLEAN HYDROGEN OUT, AND IT COULD AFFECT FERTILIZER

Talked about little in agriculture, the reconciliation package would end the 45V Clean Hydrogen Production Tax Credit. The move likely shelves an array of green hydrogen projects, including helping expand domestic low-carbon fertilizer production among the byproducts. The tax credit was expected to help play a role in decarbonizing ammonia production, but those incentives could disappear if the 45V is eliminated.

Terminating the tax credit is scored at saving roughly $9.2 billion.

The Fuel Cell and Hydrogen Energy Association cited that the U.S. risks yielding development of hydrogen power to China, which is rapidly increasing its investments. The group, in a letter to lawmakers earlier this month, also noted, "For example, hydrogen developed from agricultural waste-derived renewable natural gas would accelerate hydrogen feedstock project growth that directly benefits rural communities. The Section 45V credit also provides American farmers with ammonia fertilizer made in America – rather than Russia or China. The ammonia generated from these projects are also highly sought after in the global market, increasing access to premium export opportunities and supporting U.S. trade balance."

Leading states for hydrogen projects include California, Florida, Georgia, Pennsylvania and Texas.

Projects that start after Dec. 31, 2025, would not be eligible for the tax credit under the bill. Current law provides up to $3 per kilogram of hydrogen through the end of 2032.

Environmental Defense Fund criticized the House bill for repealing the 45V credit. The move, EDF stated, would undermine "an American-made energy boom while raising costs for businesses and families and increasing harmful pollution in communities across the country."

CARBON PIPELINE PERMITTING

Midwest groups opposed to carbon pipelines also celebrated Thursday over lawmakers removing a provision from the bill that would have created new federal permitting authority over pipelines for carbon, oil and hydrogen. Nearly 70 organizations had pressed for Congress to remove the provision, which would have essentially eliminated state authority over such pipelines.

"Within days of being introduced, Congress heard loud and clear that seizing federal siting authority for oil and CO2 pipelines was a nonstarter all across the nation," said Chase Jensen, Senior Organizer with Dakota Rural Action. "South Dakotans are paying attention, and we will work to ensure these dangerous provisions remain out of the bill."

The bill, however, maintains a provision allowing gas pipeline operators to pay a $10 million fee to expedite federal permits.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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