Farm Families Forced to Sell Land to Pay Taxes? [Listen]
Could farm families be forced to sell farmland to pay inheritance taxes when their parents pass? Absolutely, if Congress and the Biden Administration take away what is called the "stepped up basis." It is difficult to keep track of what bills Congress is writing in Washington let alone what is actually in the thousands of pages of the bill. There is the one trillion dollar bill and another 3.5 trillion dollar Build Back Better bill with all kinds of new taxes to "pay for it." So, there is talk about removing the stepped up basis for farm land.
What is the stepped up basis? Here is an example of how it works. Assume your parents bought a farm 50 years ago for $500 an acre. The basis on that land would be $500 an acre for IRS purposes. Due to inflation now assume the the farm is worth $8,000 an acre. If your parents sold the farm they would have $7,500 an acre they would have to pay capitol gains taxes on. But, what if they passed and still owned the farm?
The farm would go into their estate and be passed to their children. Their children would inherit the farm at the appraised value at the time of their parents death. If that value was $8,000 an acre the basis for tax purposes would step up to $8,000 an acre and no taxes would be paid. Remove the stepped up basis and most likely the children would have to sell the farm to pay the taxes!
I should mention that there are limits on how much you can inherit before paying inheritance taxes even with stepped up basis. I believe it is $5 million dollars. I was talking with Bob Worth past President of the Minnesota Soybean Growers Association about the stepped up basis. It had not occurred to me but Bob said this would have the same implications for families that owned business in town too. Click on the link and listen to Bob discuss the impact of loosing the stepped up basis.
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