Farmers would face an increased federal tax liability of billions of dollars following the expiration of Trump-era tax breaks in 2025, said USDA economists. The biggest impact, estimated at a combined $4.5 billion, would come from reduced income tax rates on individuals, an increased standard deduction, a cap on the deduction for state and local taxes, and the elimination of the personal exemption.
“While the corporate tax rate reductions created in the 2017 Tax Cuts and Jobs Act were permanent, some changes to federal individual income and estate tax policies were temporary and are scheduled to expire in 2025,” said the Economic Research Service (ERS) report written by Tia McDonald and Ron Durst. The changes would affect 97.6 percent of family farms, they said.
The largest farms would experience the largest incomes in estimated income tax liability measured in dollars. The largest increases in percentage terms would fall on farm households with moderate sales.
The second-largest impact, estimated at $2.2 billion, would come from expiration of the qualified business income deduction (QBID) of 20 percent on profits passed through to households from farms and other businesses not organized as corporations. About 45 percent of farm households benefit from the deduction. QBID was created to provide parity with the reduction in corporate taxes.
The 2017 tax cut increased the exemption from the federal estate tax to $11.18 million for farms and other estates. The exemption would drop to $6.98 million in 2025. The portion of farm estates that would owe estate taxes would increase to 1 percent from the current 0.3 percent. The amount paid in federal estate taxes would double to $1.2 billion.
In the report, the ERS also analyzed the effect of reviving the child tax credit that expired in 2021, and making it permanent.
The report, an analysis of the effect of sunsetting tax provisions for family farm households, is available here.
EDITOR’S TAKE:
Although not an immediate problem, 2025 is approaching rapidly. Given the political quagmire in our nation’s capital today, the wrangling over future tax policy is highly unpredictable at the moment. In other words, every farm/ranch organization in the country should put this at the top of their priority list if it’s not there already. This additional tax burden would definitely impose a tremendous negative impact for farmers/ranchers.
Furthermore, it took years of convincing congress that farmers should have a much higher exemption when it comes to inheritance taxes. With most of their assets tied up in land, and land prices escalating like they are, lowering the exemption could force some of them into a sale just to pay the tax. And, let’s face it, uncertainty will cause some to pause or be more tentative about purchasing those trucks you have advertised on AgTruckTrader.com®!
