Tax Policy Changes

February 12, 2021 by Heller Group
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Hi All,

I hope everyone is staying warm and safe throughout this frigid weather we’ve been enduring in the Midwest.

The last blog post touched on some of the influences in the commodity markets, but today I’d like to focus on a possible tax policy change that could have a massive impact on land owners and farmers alike. Being that some of the dust has settled from the election season and the inauguration of President Joe Biden, we are now seeing running points being brought into true discussion. Regardless of your political background, it comes as a shock to learn what some of the proposed tax changes translate to in reference to our financial planning and our livelihoods. In particular, the “Stepped Up Basis” has been a buzz word across the country and is a rather serious issue when it comes to farm families and land owners.

The “Stepped Up Basis” is a term used to reference the tax code in place for inheritances and passing down assets. It has been a part of the United States tax code since 1921 and refers to the ability of the government to tax the value of an asset based on the current value at the time it is transferred or passed on, rather than the original price paid for said asset. In essence, if your parents or grandparents had purchased land in the 80’s when the economy was in somewhat of a turmoil state, they might have paid $1000/acre for a good parcel. Today, that same parcel could be worth upwards of $10,000/acre. If in fact you were to inherit that land today and you wished to sell, the “Stepped Up Basis” incurs that you are not liable to pay for the $9,000/acre that the land has increased in value from the time it was originally purchased, simply whatever amount is determined as capitol gains from the sale after the basis has been “stepped up” to current value. In other words, if the asset is sold after it’s inherited, then the stepped-up value is the base that gains are measured against for taxes. Any gains in value from the time of original purchase to the time the asset is “stepped up” to market value when inherited are not taxed.

What Does This Mean For Land Owners And Farm Families?

This could be devastating to current farm families with a land base built by generations of hard work and thoughtful planning, just the same for people with investments in land or other portfolios comprised of stocks, buildings and so on. It would see a very large tax bill for anyone who inherits assets or plans to leave an inheritance. The shift would impose long term capitol gains taxes and increase the record keeping needed to be done across the board, limiting the abilities of estate plans, and forcing many people to make changes to their financial strategies. Case in point, I encourage you to keep a watchful eye on this issue and think about contacting your tax professional and local representatives.


Best Regards,

Scott Buboltz


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