Are Farm Estate Tax Planning Changes on the Horizon for 2025?
For many farmers, federal tax policy can be as impactful as a Farm Bill in terms of ensuring the financial viability of their farms and their ability to pass it onto the next generation. 2025 is setting up to be an important year for federal tax policy impacting farming and other businesses, as many of the provisions from the Tax Cuts and Jobs Act (TCJA) passed by Congress in 2017 are set to expire.
Given the magnitude of the financial impact to a majority of Americans, including farmers, if these exemptions and lower limits were to expire (effectively acting as a $4 trillion increase), it is almost certain that this will be the top priority for the 119th Congress when they convene in January 2025.
Many consider the TCJA to be one of President Trump’s cornerstone achievements of his last administration. And since Republicans will have the majority in both chambers of Congress, they will most likely seek to build off the success of the TCJA by working to make some of the expiring provision permanent and making further modifications to the tax code. However, given the narrow majority that Republicans have and the fact that tax policy is one of the most divisive things Congress can get itself into, Democrats may also have to play a part in passing any future bill in a bipartisan manner.
Approaching the Federal Debt Levels
Adding to the complexity of the challenges facing the next Congress in reaching a bi-partisan agreement on tax legislation are mounting concerns over the rapidly expanding federal debt. The growing level of debt the U.S. has taken on since passage of the TCJA (increasing by $11.6 trillion from 2017 to $33.2 trillion as of the end of 2023) means there will be considerable pressure on Congress to ensure any new tax legislation be revenue-neutral, if not deficit reducing. Another key factor for Congress to consider is the amount of economic growth projected to be generated from additional modification or changes to what becomes permanent law, so there may be some additional flexibility in preserving or lowering certain rate and limits depending on the state of the economy.
Revisiting Tax Provisions
Anticipating the need to address the expiring tax provisions, Members of Congress are already starting to highlight their key priorities for the next tax bill. Some priorities receiving the most attention include removing or raising the limit for State and Local Income Tax (SALT) deductions, increases to the refundable child tax credit, making section 199a permanent law for passthrough small business, as well as the normal arguments around the appropriate levels for both the corporate and individual tax rates. One provision that has not received as much attention is the sunsetting of the larger exemption limits for the estate tax, which is of critical concern for many farms and ranches as well as other family-owned small businesses when considering farm estate tax planning.
Prior to passage of the TCJA in 2017, the estate tax exemption level was $5.49 million. The TCJA temporary doubled the exemption limit – indexed to inflation – resulting in the current exemption limit of $16.16 million and $27.22 million per couple as of 2024. Should Congress let the current provisions expire at the end of 2025, it’s estimated that the limits beginning in 2026 would revert to approximately $7 million per single taxpayer, or $14 million per couple. (Note that these figures also account for the gift limits, etc.)
Stepped-Up Basis Status
Besides implications of the expiring increased estate tax exemptions for family farm operations, another important farm tax provision is stepped-up basis – a critical tool for farmers and ranchers due to the unique nature of their businesses since the primary asset for most farmers is their land, which historically appreciates in value over the life of their business. Losing stepped-up basis as a farm estate tax planning tool would mean farmers would be taxed on the full appreciated value of their land as compared to the cost of the land when it was purchased. The loss of stepped-up basis as a tax planning tool could result in heirs of a farming operation being forced to sell part of their inherited land to cover the cost of the tax upon the death of their forbearer. An additional implication to the loss of stepped-up basis would be an increased number of farm operations subject to the estate tax in a time in which margins on many farms are historically tight.
Although there have been several attempts over the years to remove or reform stepped-up basis to increase the amount of revenue generated, none have been successful given the voices of farmers and ranchers informing Congress about the impact of these changes on the long-term profitability of their farm operations, as well as their heirs.
It will be important for farmers and landowners to stay informed on these and other farm tax laws as the next Congress embarks on writing new tax legislation in 2025. Compeer’s legislative affairs team will be working with a coalition of state and federal agriculture interests to help inform members of Congress of the importance of protecting certain current tax provisions that help support our clients and our rural communities.
To ensure you're fully prepared for your farm estate tax planning, consider reaching out to the Compeer appraisal department. Our team of experts is equipped to provide personalized insights and strategies tailored to your unique situation. Don't wait until it's too late—contact us today to find an appraiser near you and let Compeer be your trusted partner in navigating these upcoming changes with confidence.