As Republicans and farm organizations raise more questions and challenge President Joe Biden’s plans to raise capital gains taxes and limit stepped-up basis, a group of rural Democrats in Congress is pushing to ensure farms and small businesses are excluded from any change in inherited basis.
Biden’s plan to fund his infrastructure package and spending plan for education, childcare and health insurance is tied to tax proposals that would all but double the capital gains rate from 20 percent to 39.6 percent, topping 43.4 percent when the Medicare surcharge is added.
The plan would exclude the first $1 million in assets for an individual.
In a move that has set off alarm in farm groups, Biden’s plan also eliminates stepped-up basis for inherited assets beyond $1 million per individual or $2 million per couple. The White House states its proposal would not affect inherited family farms or small businesses that remain in those families.
The group of 13 Democrats, mostly members of the House Agriculture Committee, sent a joint letter to Democratic leaders raising their concerns about how the repeal of stepped-up basis could hurt family farms. They called for full exemptions for family farms and small businesses. The Democratic lawmakers want to ensure the exemptions for farms and businesses are written into any tax bill that passes.
The House Democrats added in their letter the challenges of administering changes to taxing basis for farm machinery and other business equipment. They called on “strong protections” to ensure that farms do not have to be sold or liquidated.
Brian Kuehl, a principal at member company K-Coe Isom, said accountants at the firm who work heavily with farm families have been providing members of Congress some details about how various proposals could affect farmers.
Still, Kuehl said the Biden administration provided a starting point on the taxes by saying they did not want the changes to affect family farmers or small businesses. Before the American Family Plan was announced, accountants for farmers and other businesspeople were working off the assumption that the Biden administration would propose eliminating all stepped-up basis.
“I think we were pleasantly surprised to see the language exempting farms and family-owned businesses, and that’s a good thing,” Kuehl said. “We’re happy the administration laid down the marker, and that gives a lot of leverage in the context of what Congress does here.”
Beyond the sale of real estate, other assets such as combines, tractors, other large assets and even grain inventory could be affected. Real estate could be taxed under capital gains, but other business property could be taxed as ordinary income as well.
“I wouldn’t go so far as to say that if you’re a family owned business, you’re off the hook. There are still some hooks that could get you,” said Brad Palen, a CPA for K-Coe Isom in Kansas.