Every year the president sends a budget proposal to Congress for consideration. The section dealing with how to pay for the budget is called the Green Book, explains Paul Neiffer, The Farm CPA.
Neiffer told AgriTalk Host Chip Flory on Wednesday that the Biden administration is proposing substantial tax increases that, if passed, would impact many U.S. farmers. You can listen to their discussion here.
Six of the key points Neiffer highlights in the AgriTalk discussion and also covers online at farmcpareport.com are proposals that would include:
1. Imposing a capital gains tax on transfers, either during life or at death. Neiffer explains there would be a $5 million exemption ($10 million for couples with portability). Also, farmers could elect to defer the tax until it is no longer farmed in the family, but interest would be due and payable over 15 years.
2. The Excess Business Loss (EBL) would become permanent, and the carryover would no longer be part of the net operating loss (NOL) but would be subject to the EBL rules. Essentially the maximum NOL deduction in any year would be $500,000 (indexed), Neiffer told Flory.
3. Section 1031 gain deferral would be limited to $500,000 ($1 million for married couples) in any year.
4. Capital gains on amounts over $1 million would be taxed at 37%/39.6%.
5. The maximum Net Investment Income Tax (NIIT) rate would bump to 5%.
One Silver Lining
Neiffer told Flory there is one major provision that might help farmers:
6. Section 2032A would be bumped up to $14 million and indexed to inflation. This would allow farmers to value their land at its rental value instead of current fair market value. Current law allows for about a maximum $1.3 million deduction. This would increase it to $14 million, Neiffer says.
Subscribe to the podcast, “The Top Producer Podcast” with Paul Neiffer. Paul visits with business-minded farmers and ag experts for lively and in-depth conversations on strategy, management, transition planning and more.
