The $1.8-trillion plan unveiled in a joint session of Congress Wednesday evening by President Joe Biden included proposed increases in the capital gains tax rates with an exception included for agricultural land.
USDA released an analysis, noting the plan would defer any tax liability on family farms "as long as the farm remains family-owned and operated." USDA also said assets subject to the $1 million-per-person exemption would continue to receive a step-up in basis when sold.
Only 2% of farms would owe any tax, and that would be on non-farm assets, USDA detailed. "No capital gains taxes at death for family farms. This plan includes a special protection for family-owned farms and businesses," USDA said. "It defers any tax liability on family farms as long as the farm remains family-owned and operated. No tax is due if the farm stays in the family. No one should have to sell a family farm they inherit to pay taxes and the President's tax reform guarantees that."
There would an exclusion on the first $2 million in capital gains for married couples. "This plan also excludes the first $2 million of gains per couple ($2.5 million if the farm also includes the family home) from capital gains tax and heirs continue to get step up in basis on those first $2 million in gains. If an heir decides to sell the family farm, the first $2 million in gains is tax free."
In a proposed change that will raise concerns for agriculture, the plan proposes dramatically curtail what are called 1031 exchanges which allow taxpayers to defer gains on real estate if they exchange that for a like property within six months of the sale. The plan would end the 1031 exchanges on real estate profits of more than $500,000.