Estate tax touches only a few farm families
Despite its fearsome reputation, only a comparative handful of farm households are obliged to file a federal estate-tax return, and most of them won’t pay the government any money, said USDA economists. Large tax exemptions — $11.58 million per person in 2020 — shield most estates from tax liability.
In addition, heirs face a smaller potential liability for capital gains taxes due to the use of stepped-up basis in calculating property values. Property is assessed at its value at the time of inheritance, rather than when it was purchased. The difference is significant if land stayed in the family for decades.
“Research suggests much of the appreciation in the value of assets in the estate has never been taxed — either as income or capital gains — and thus will escape taxation completely,” said the USDA.
Based on mortality rates, estimates of farm assets and debts, interest rates and farmland rental rates, the USDA estimated that 31,394 farm estates “would be created out of principal farm operator households, and out of those, 0.6% — or 198 estates — would be required to file an estate tax return.” Only 0.16% of estates — roughly 50 estates — would have an estate tax liability, said the Economic Research Service. “Total aggregate Federal estate tax liabilities from principal operator farm estates in 2020 are forecast to be $130.2 million.”
The 2017 Trump tax cuts doubled the individual exemption from the previous $5.49 million. On Jan. 1, 2026, the exemption reverts to $5 million but will continue to be indexed for inflation. Stepped-up basis also would be available.
Five Democratic senators announced a discussion draft to eliminate stepped-up basis last week. “The stepped-up basis loophole is one of the biggest tax breaks on the books, providing an unfair advantage to the wealthy heirs every year,” said Sen. Chris Van Hollen of Maryland. A congressional committee estimated the provision was worth $41.9 billion this year.
The largest U.S. farm group said a rollback or elimination of stepped-up basis would have “a devastating impact” on agriculture. “Stepped-up basis encourages families to grow their businesses and pass them on to another generation, and elimination could force those families to sell their farms just to pay the taxes,” said Zippy Duvall, president of the American Farm Bureau Federation. “I’m confident that’s not what Congress intends. AFBF urges lawmakers to discard these misguided proposals.”