While President Joe Biden has repeatedly promised that wealthy people will be the only ones impacted by his tax proposals, his plan will also hit American farm and ranch owners by limiting a longstanding tax break.
Under the provision, known as a 1031 like-kind exchange, landowners can defer paying capital gains taxes after they sell an investment property and put the money toward buying different land, The Wall Street Journal reported.
The tax break has been used to cheaply and quickly relocate farms to land with better soil to diversity crop growth and consolidate land.
According to data from 2012, farm owners held about 40 percent of land in the continental United States, the report said.
The Trump administration narrowed the use of the 1031 tax deferment by limiting the exchanges to only real estate; farmers used to apply it to other types of personal property, such as farm equipment and livestock.
“That has been a very hard change,” fifth-generation cattle rancher Kalena Bruce told The Wall Street Journal.
“We still have to make improvements to our herd, still have to make improvements to our machines.”
Biden’s proposal would cap the profits that can be tax-deferred at $500,000, adding another burden to farmers.
The plan also would raise the top capital gains tax rate from 23.8 percent to 43.3 percent.
Farmers say the Biden plan would make it hard to keep land in the family because it would impose capital gains taxes at death, but the administration disputes that.
“The reform will be designed with protections so that family owned businesses and farms will not have to pay taxes when given to heirs who continue to run the business,” the Biden administration fact sheet on the plan says.
The single sentence addressing “protections” is not clear, however, and many people still have questions.
Not just estate taxes. Joe wants to do away with Section 1031 exchange. That will kill the family farms. https://t.co/F6YgBqYlki
— Getoffmylawn, AKA Burgermeister Meisterbiden (@RipdRoycephus) May 2, 2021
“I think there’s cautious optimism for family farms and businesses,” Ali Hutchinson, managing director at Brown Brothers Harriman, told CNBC.
Kristine Tidgren, director of the Center for Agricultural Law and Taxation at Iowa State University, said tax breaks like 1031 have allowed farmers to keep as much cash on hand as possible.
“Farming is very cash-poor,” she told The Wall Street Journal.
“Without a lot of these tools, you wouldn’t really be able to function in that sort of environment.”
This article appeared originally on The Western Journal.