Tax increases in Biden plan could put Colorado legacy farmers out of business
(The Center Square) – Tax increases included in President Joe Biden’s proposed American Families Plan (AFP) could decimate family farms in Colorado, according to the agriculture industry.
The $1.8 trillion plan would significantly increase taxes on capital gains for appreciating assets such as farmland, leading some to be concerned about the rising price of inheriting one of the country’s nearly two million family-owned farms.
“Inheritance taxes, and in particular the removal of the Stepped-Up Basis in the [AFP], would devastate family farms and ranches by making it impossible for the next generation to afford to take over,” Colorado Farm Bureau Vice President James Henderson told The Center Square in an email.
According to a fact sheet from the White House, the AFP focuses its investments in three areas: education, economic stimulus, and tax benefits for families.
The AFP would extend tax cuts already put in place under the American Rescue Plan, such as the Child Tax Credit, the Earned Income Tax Credit, and the Child and Dependent Care Tax Credit.
However, the plan also includes large increases in farm transfer taxes – which are assessed when a business is transferred to a new a new owner either by sale or death.
One reason this tax is especially pernicious for farmers is that the amount owed can exceed the actual value of the farm’s business.
Paul Neiffer, a certified public accountant who works with farmers, recently demonstrated how the tax works with an example in the Farm Journal: If a farmer buys farmland for $1 million and amasses a farm with assets of $10 million and a total debt of $7 million, the farm could be transferred to a new owner at a net value of $3 million under the current system.
With the proposed AFP transfer taxes in place, the farm’s new owner would owe capital gains taxes on the $9 million of capital gains, according to Neiffer. These gains would be assessed at a 43.4% tax rate, meaning the new owner would inherit a business with a tax bill of approximately $5.1 million and a negative net value of over $2 million.
Henderson says this could inspire many next-generation farmers to simply liquidate their family business instead of paying the bill.
“Farms and ranches have the majority of their value tied up in land and equipment,” Henderson said. “Very few have the available cash to pay these increased taxes while keeping the farm running. This means family members are forced with the decision to sell assets or even the farm itself to pay for taxes.”
“This could mean losing a legacy that has been in the family for generations,” he added.
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