The Tax Cuts and Jobs Act included an estate tax exemption that covers transfer of assets up to $11.58 million. But the current estate tax exemption level is set to expire in 2025 and could threaten family farms in the future if a permanent change isn’t made by Congress, according to American Farm Bureau Federation Chief Economist John Newton.
“After December of 2025, that amount returns to a $5 million inflation adjusted level,” Newton said. “So, if we don’t get a permanent extension of the $11.58 million or we go back to a lower exemption level, that really risks the family farm operations across the country.”
Newton noted estate taxes are a tax on the transfer of property following a death.
Farms with assets above the estate tax exemption often must liquidate some of those assets to meet estate tax obligations, which can reach as high as 40 percent of the taxable amount. Estate taxes are a particular concern for farmers and ranchers because they are based on the market value of the asset. Given the consistent appreciation in agricultural land and assets, this can be high for farm and ranch families, Newton noted. A limitation on the estate tax exemption means that each year, fewer and fewer farm families will be protected from the estate tax–a clear risk to the continuity of family farms.
“If you have asset values that are above that $11.58 million, those are going to be subject to the estate taxes, which can be as high as 40 percent,” Newton said. “If we potentially lower the estate tax exemption to $3.5 million, or an inflation adjusted $5 million, we’re looking at more assets out there being subject to additional taxes. And some are looking at that as a pay for to pay for other policy objectives.”
Farmers and ranchers need a permanent fix, Newton said.
“A lot of folks often point out that it’s a small percentage of the farm population across the country that would be subject to these estate taxes. But when you look at USDA data, it’s actually a large percentage of the agricultural land area in this country that could be subject to these estate taxes upon death,” he said. “So, we urgently need a fix to help and protect the family farm operations.”
Find a complete analysis on AFBF’s Market Intel page.