By Jennifer Whitlock
Field Editor
At 84 years old, Melville Steubing has been involved in ranching since he could walk. And his family’s ranching heritage runs even deeper.
From the first year his German immigrant ancestors set foot on Texas ground in the 1840s until today, there has never been a time when the Steubings were not involved in agriculture.
But everything he and his ancestors have worked to pass on to future generations may be lost forever, thanks to devastating inheritance tax proposals being considered in Congress.
Having spent 25 years as an Internal Revenue Service (IRS) agent, Steubing is no stranger to the American tax code. The current proposals included in President Joe Biden’s proposed fiscal year 2022 budget are some of the worst ideas he’s ever seen.
“I’m scared and really afraid that if they pass these tax laws, the unintended consequences will cause a lot of ranch families to have to sell,” he said. “If they do this, my daughters will not be able to keep our property.”
Through his American Families Plan, Biden proposed ending the step up in basis for gains upon death, raising capital gains taxes and deeming death and gifts as transactions, among other changes.
A ranch family’s heritage
As the youngest son of a large family, Steubing grew up hunting and ranching on a large spread in Converse, northeast of San Antonio. Despite the large parcels of land associated with the family name, times were tough.
Steubing said he took accounting courses and obtained his teaching certificate so he would always have three different ways to earn an income: farming, accounting and teaching.
During school, he met Cinda Howard, who had a similar background growing up on a family ranch in Iola. They married after graduating from Sam Houston State University and began raising their own family while helping with their family’s ranches.
“At first, I had to have another job just to ranch, before I inherited or bought land on my own. I worked in the daytime for the IRS with a suit on. I’d come home, jump in my blue jeans, and we’d go ranching and feed cattle in the evenings,” he said. “We worked as hard as we could, and we got to where we are now with some inherited property plus investment property and reinvesting into land whenever we could.”
Melville and Cinda’s love for ranching flows in the veins of their children. Their daughter and son-in-law, Beverly and Gary Box, have managed the Steubings’ Carrizo Springs operation since 1983. They also bought their own property where they have a cattle and deer-breeding operation and grow hay. Three years ago, they began leasing Beverly’s parents’ property and now make all management decisions and oversee daily operations.
A family’s future in jeopardy
The Steubings plan to leave their properties to their daughters when they pass so they can continue the family’s ranching heritage. But Biden’s tax proposals have them extremely concerned that future generations’ inheritances may be gobbled up by taxation.
Right now, Steubing explained, when a person dies, the decedent’s property, or estate, is valued at the date of death.
The heirs, who are charged an estate tax up to a top tax rate of 40%, receive a step up in basis on the value of the assets. If the assets have appreciated between the time when they were originally purchased and when the heir inherits, the basis is stepped up to fair market value without incurring any capital gains taxes.
If an heir inherited property that was given a fair market value of $2.2 million and sold that property for $2.2 million, under current law, they will not pay any capital gains taxes.
But Biden’s proposal would eliminate the step up in basis and instead shift inherited property to a “carryover” basis. Instead of allowing an heir to step up basis to current value, they would take on the basis of the property when it was acquired by the decedent.
In the same scenario, an heir with an inherited property purchased at $200,000 that is now worth $2.2 million who sold the property would owe capital gains taxes on $2 million.
This is a common situation when land has been passed down through generations, Steubing noted. Land was often purchased for much less than its value today, even accounting for inflation. In Texas, U.S. Department of Agriculture Land Values Summary data indicate cropland values have changed 201% from 1997 to 2020.
“The stepped-up basis doesn’t make that much difference if you keep the land or house or whatever you inherited forever. If it’s worth $1,000 or $1 million, it doesn’t matter. You’re not selling anything, so there’s no capital gain,” he said. “But if you ever have to sell some of the land to finance a new piece of equipment or to buy some more cattle, losing that step up in basis would really make a lot of difference. It would likely coincide with a much higher tax on the capital gains.
So, it’s multiplying taxes tremendously on one transaction.”
That’s because the Biden administration indicated it would tax capital gains for “high-income earners” at ordinary rates. In the situation of the heir with the $2 million carryover basis, that gain would count toward their adjusted gross income (AGI), possibly pushing them above a $1 million AGI cap. The heir would then have to pay ordinary income tax rates of up to 37% on the capital gain. The current top capital gains tax is 20%.
Despite Biden’s explanation that raising capital gains taxes would only impact the wealthy, it would affect more family-owned farms and ranches. In 2018, according to IRS data, nearly 40% of family farms and ranches reported some capital gains or losses, compared to about 14% of average individual taxpayers.
Another issue at stake is deeming death a “transaction.”
Adding to the example provided, the heir whose property was purchased for $200,000 and worth $2.2 million would now have to pay capital gains taxes on the $2 million gain, despite no actual sale occurring.
The situation seems unconstitutional to Steubing.
“Deeming death as a sale or transaction would be awful. It would force people to sell. It’s one of the worst things that could ever happen,” he said. “How is it fair when you have property 64 years, like this land here in Carrizo Springs that my dad bought, and you have to pay the difference between the $100 per acre it was purchased for and the $2,000 or $3,000 an acre it’s valued at now and not even have a sale? Where do you get the money to pay for that?”
The value of many farms and ranches is tied up in land, equipment and livestock, he noted. Most families don’t have the money needed to pay those capital gains taxes and would be forced to liquidate.
“The bad part is what this will do to the agricultural industry. If you own stock in a company, you can sell whatever stock you need to pay taxes,” Steubing said. “But here, you disrupt the whole industry. Many family businesses have higher markups or can adjust their sales. Farmers and ranchers are price-takers. We’re on the end where we can’t control anything.”
He worries about who will be there to purchase the floundering family farms and ranches, should the tax changes come to pass. The executives at big tech firms? Investment firms? Foreign sources? Developers? He wonders who will be left to grow and raise food.
“The family farm and ranch wouldn’t exist anymore,” he said.
An uncertain way forward
If the tax proposals were enacted, it would “destroy” the Steubings’ ranches.
“And now, if after we all put all this effort in—me, all my grandparents and parents, my wife and her daddy and all her ancestors—we’ve worked very hard to get to this point to where we can actually have an income without needing to have another job. But if they enact these taxes, my daughters will not be able to keep the property,” Steubing said. “My daughters and their children would have to work from scratch with what little we would have left and have extra jobs to try to build it back up to where it was, and they could probably never get that far with land prices and inputs being what they are these days.”
Although there are many challenges ahead, Steubing is adamant he has no plans to quit ranching or sell land before his daughters inherit.
He urged anyone with a farm, ranch or small business to contact their legislators and let them know how detrimental this legislation will be to their operations.
Although the impact may vary, farms and ranches of every size will be affected.
“All I want to tell everybody is to please fight this. It is a matter of life and death for farmers and ranchers,” he said. “I’ve seen how bad tax laws can affect people.”
Farm Bureau advocacy
Texas Farm Bureau (TFB) and the American Farm Bureau Federation continue discuss the detrimental impacts of the tax proposals with lawmakers.
In June, Republican leaders of the Select Revenue Measures Subcommittee of the U.S. House Committee on Ways and Means held a meeting to discuss ramifications of changes to inheritance tax codes on family-owned farms, ranches and small businesses.
TFB District 1 State Director Pat McDowell testified before the committee, sharing how the tax proposals would personally affect his family’s farm and ranch.
TFB encourages members to contact congressional leaders to ask for continuation of stepped-up basis and not to impose capital gains taxes at death.
More information is available at texasfarmbureau.org/advocacy/voter-voice.
So any family with large property holdings is going to take advantage of the tax code, by incorporating these properties and having the family as shareholders. There are any number of ways to dodge the inheritance tax. Ask the Walton’s, they are the family most invested in destroying inheritance tax.
I keep seeing these heart wrenching stories that are totally avoidable. They are designed to frighten people who don’t know that most estates aren’t taxed til you get to the tens of millions and there are plenty of ways to see that doesn’t happen with a sharp pencilled accountant.
You ought to go see your accountant again or ask for another opinion, you can’t just start up a LLP, Corp and make your kids the owners. Gift Tax!!!!! at the value of the gift when given.
We have also been here since 1846, our situation couldn’t be more parallel, what do we do?
Most estates are not taxed NOW in Texas under ESTATE TAX, but there are many different kinds of taxes. Biden is talking about lowering the estate tax exemption drastically. Besides that what this man is talking about is CAPITAL GAINS TAX which is normally just imposed when you sell the land, but he is saying that they are talking about treating an inheritance as a sale. You wouldn’t be paying Estate Tax, but you would owe tax on the difference between the the basis and the current value at the time of death as if you had bought the property instead of inheriting it. In essence EVERYONE would be paying a tax on their inheritance, no matter how small. This is terrifying!
This is not right! We must fight this new inheritance tax proposal. I can see at point of sale but not at death. During a sale, the owner will get money. At a death, there may be no money inherited to pay such a tax. This is WRONG in so many ways. My earliest German immigrant ancestors set foot on Texas ground in the 1830’s when it was still Coahuilla y Tejas, part of Mexico. I love my state. Family ranches and farms are important to me. We must protect them!
Uh, the “Estate Tax” has an 11 MILLION dollar exemption for a single estate, 22 MILLION for a married estate. So NO tax reguardless of step up value until that threshold. I don’t feel sorry for ANYONE inheriting more than 11 MILLION dollars! Those are not SMALL FAMILY farms worth that much. As was said in other replys, those worth that much are rich enough to have a lawyer fix it to no pay a thing. And “Capital Gains” are taxed at much lower rates that normal income. Usually 15 percent or less. So don’t worry about anyone coming for a 10 acre plot with a double wide on it. Tax free. Unless those 10 acres are in Downtown Los Angeles!
It might look like an $11 million dollar worth, but that is only if sold off.
Our family is in a similar situation with a second generation run business, where our parents sold the business to us, but not the property. Now we are in a position where dad is in his mid 90’s and he wants us to have the property too, but we can no longer afford it’s value whether we wanted to buy it or if he left it to us to inherit because the tax is in the millions, whereas our small medical practice is not.
We who have lake properties have to pay raising taxes…
Not the same; What are you producing that sustains other families through Agricultural production in the state? The lake property is for your recreational use…..completely different purpose. Although if family farms go down, you’ll at least have some food/fish to source…..unless the waters are contaminated. Now if you where responsible for maintaining the quality of the entire lakes biological system, then your responsibility level would mirror Agricultural demands and you’d be a Fish Farmer 🧑🏻🌾
This new taxing proposal by the Biden/Harris
Administration not only involves Farms and Ranches, it takes in every Business and Homestead
In this Nation., thus destroying incentives for all working class citizens to produce anything.
I will never vote for anyone who discourages others
from striving to make a better life for their family.
He’s a traitor who sold out the minute he said he wanted to be president and went into hiding on the “INSTRUCTIONS ” he received form the ultra liberals——It is really a crying SHAMEFUL PRESIDENCY
Our family will be affected by this as we have a small cattle/hay operation on property that has been in my dad’s family for more than 100 years
It is criminal to cause people to loose their rightful inheritance on anything because the government wants to increase taxes.
Very sad to read this but not surprised, truly believe the current administration wants to strip most Americans of their hard earned assets, creating further dependence upon the government. Are we going to become Venezuela?
We too will loose our family farm in the family since 5 generations ago. Why not step up the basis for every calital gain to the time the law passes allowing for planning to take place from then on. Should not be able to change any laws that go back before a change is made. Retroactive is unlwfull and wrong when people plan for and devote their time and energy in one direction just to have it all not matter in an instant because someone can not pay the debt they incur(ie:Biden) is wrong for every wealth level. Why are they allowed to go back 150 years and change the rules to fix a current avoidable problem with overspending? I think everything Biden has done (immigration, HIGHER Taxes, inflation, afganastan crisis, ect…) has played out just as he intended and will lead to government dependence in the end. This will affect every person down the line with higher prices and government controlled everything. Who this will not affect is anyone who does not work or buy anything with their own earned money. Eventually we will all get taxed every month on every item we own just so we can keep it. I have way less than 400k income and will be paying dearly for this raise in taxes. So much for promises.
Need to stop this change.
What happens to those families who got the lands from a land grant from the king of Spain?
Family farms, ranches and small business passing on assets due to a death are different than big industrial corp and private businesses considering capital gains from a transaction. Starting with no money changing hands, just property. The fact that most farms and ranches have high property tax bills and the family getting that inheritance are already influenced, as workers on that property, by that debt. Inheritance tax is a bad deal if no sale is done of the property and then should be a reasonable sales tax.
This will destroy the family-owned agriculture in the U S. Everything will go to large corporations and to foreign owners. What a sad day when we can’t support the backbone of the American dream and economy!
The death transaction will never pass. The step-up allowance may pass but probably not Although both proposals are very wrong-headed, the Republicans in Congress have no one to blame for these proposals but themselves. After 40 years of policies that only helped the super wealthy, they should not be surprised when the unlanded demand changes such as these from there elected representatives. Folks without property can’t relate to someone who has millions of dollars worth of land but not the cash to pay for the onerous taxes from these proposals. And of course, the families of land owners are the collateral damage. None other than folks like Warren Buffett have pointed out that the pendulum has swing too far toward the “ultra high net worth” individuals. And this is what we get. Hopefully, cooler heads will prevail and we can find a common ground but don’t hold your breath.
This is mot fair to the very hard working class of people. We have to have ranching and farming for our every day living. Corporations can’t keep us fed the way farmers and ranchers can. This is what America was built on. We have got to retain it and we can’t have these kind of tax laws that we can’t afford.
So establishing a trust and passing down the land is out of the question?
It is a horrible Bill with extreme consequences…. I’ll tell you who will be buying up the farms, foreigners, probably China…
I am glad to be informed of these proposed changes and will do what I can to act on it.
This is not fair to farmers & ranchers who have worked hard to help feed America. Please notify you elected officials to vote NO on this bill
Which Bill number is it?
I agree with these comments. The Biden proposal is way to severe.I hope the republicans can significantly modify it or defeat it altogether. If we vote republicans in maybe they can reverse it when they gain power.
We just need to stop carried interest; whereby top executives & founders use their stock as collateral for loans they never intend to payback to fund their lifestyle
They don’t need to sell their stock, it keeps going up in value, interest rates are low & it lowers the value of their estates at death.
This is the problem, not ordinary people who work for the benefit of future family members
I don’t envy the entrepreneur s that have been successful. Sell your stock & pay taxes to fund your lifestyle.
This article is disingenuous. While i do not like the elimination of the step up, saying it threatens a farming life makes no sense. If you have to sell land to buy equipment, keep your equipment purchase under $1 million dollars and the step up applies ( $2 million for a couple. The money for taxes comes from the proceeds of a sale (above the exempted amount) and is not due until a sale.
Let’s take a deep breadth here. Law has not passed yet, and there are methods to cushion the burden. And $1m of gain will be exempt from tax. Tax due maybe $200k. A large amount buy can be spread out under the code. And other planning methods can address And there is not estate tax. I suspect there will be changes to the proposal.
That is just another way for the communist government of the Biden administration to take over your land and businesses.
Under this proposal, as long as the kids keep the property, they’ll pay no capital gains tax, so if the concern is carrying on the family on the family business, the proposal has no effect. The only effect is if the kids sell. If so, this puts them on the same footing as their parents would have been had they sold the property.
Therefore, the argument against it can’t be that it destroys family businesses. The argument becomes: I should be able to pass my property to my kids tax free.
Foreign countries do not pay capital gains tax when they sell American land for a profit. Maybe they should be addressing that issue more than taxing hard land working Americans.
I agree this is wrong on many levels I just own property and a home that adulthood my kids it’s a shame
The current exemption for the inheritance tax is 11.7 million. Which means that fewer than 1% of all estates pay any inheritance tax at all. And those that do belong to families that are wealthy.
You will own nothing and you will be happy. This bill is part of the globalist agenda to strip people of their land and property, and destroy any chance at generational wealth for the middle class. The rich and wealthy will find ways to skirt this tax as usual, while middle class families who worked to leave something behind for their children get robbed. People who’s parent’s manged to buy a house before the prices skyrocketed or were able to save money and invest will lose their inheritances due to this.
As a retired tax CPA who has worked for both the IRS and International CPA firm, a Past Chair of a state society of CPAs, a past member of various state and Federal income and estate tax committes, a former member of AICPA council, and a CPA that met with both state and Federal elected officials, I find Biden’s proposals to be ignorant and frankly, stupid.
Whereas the US, including the state inheritance tax, currently charges a rate up to about 70%, the Biden proposal can bring the combined tax to over 100%. That is right, the heirs get nothing and owe money.
Canada has the inheritance tax that just taxes the unrealized gains. The US currently has an estate tax that taxes everything, minus an exemption.
If the law passes, thousands, if not more Americans, will be forced to move or the family is bankrupt. Then the country gets almost nothing.
Tax CPAs and attorneys are paid millions to help avoid these taxes or get sued for malpractice.
Clinton and Obama began a spiral effect that already has chased thousands of Americans and corporations (elsewhere). This will exponentially increase that, if not stopped.
My hope is that common sense takes over rather than a state of idiocracy where the country will inevitably fail.
Most civilizations imploded within in about 250 years, including: Romans, Egyptians, Byzantines, and more. I believe Biden’s plan has to send us down that path or all successful and hardworking people could lose everything.
Common sense.
Shocking revelation!
Everyone is ignoring why the land has appreciated so much, inflation. Since I was a kid (75 years ago) prices have increased ten fold. 90% of the capital gains tax is due to government malfeasance. (If held for past 75 years). Therefore government drives up the price but not the economic value and then taxes you on their nominal price increase.
Sell your properties to your children for $1.00
Irene-How does a person sell their property to their children for $1.00? I have heard that is possible but don’t know any details on actual procedure. My 88 year old mother just moved in with me(I am her daughter) & my husband. She is currently receiving both Medicare & Medicaid benefits. She is a widow of 30 years now & has lived alone since then, but can no longer live alone due to chronic health issues. I am afraid she may lose her Medicaid benefits, since selling her house (even for $1.00) would be considered income. My mother’s primary care doctor told her she could sell her home for $1.00 to my 24 year old son, since he is in a lower tax bracket. Do you have any suggestions or know of a website or organization that can be a resource for us? I understand I can go to an elder attorney, but I’m sure that will cost a lot.
I do not understand taxes but from what I read this man sure does! And from what I’ve learned so far from this corruption administration this isn’t the only thing the people of the USA have to be afraid of… Something has to happen before it’s too late and there is no turning back. We the people need to stand up and stop this government from ruining our country! I pray for this family and all the other families effected by the government screwups.