A Taxing Situation…
Yeah, the above is farmers everywhere reading deeper into proposed tax changes coming out of D.C over the past few weeks.
Senate Democrats have introduced a tax proposal poised to prevent the estate tax from dying out. The Sensible Taxation and Equity Promotion [STEP] Act would tax currently unrealized capital gains at death.
It’s a grim proposition for farmers, who account for 1.7% of current estate tax generation. The STEP Act would eliminate the stepped-up basis that heirs receive for property and include a $1 million per person exemption.
Translation: For all our fellow novice tax accountants out there, a stepped-up basis typically means big-time tax savings. Eliminate it, and Uncle Sam will be showing up at farm gates across the country looking for his fair share.
Under current law, heirs receive the stepped-up basis in an asset’s value, and after that, they pay capital gains tax only after they sell the asset and only on gains after the original owner’s death.
The act would eliminate that and add a tax for transferring assets – like tractors or grain – as if they were sold for fair market value, even while the farmer is still alive.
This might sound familiar because there’s been a lot of death tax buzz lately. The act comes less than a month after the Republican-backed Death Tax Repeal Act of 2021 was introduced to the House and Senate. What a coincidence.
What’s next: Significant debate is expected as the Biden administration weighs this act in the context of paying for a new infrastructure proposal. The STEP Act has to make it through a 50-50 Senate – so it’s a game of wait and see.