Proposed tax code changes and their effect on Montana's ranching families

It is no secret that family farms and ranches face tremendous challenges right now. Corporate monopolies, a changing climate, rising health care costs and a lack of capital are just a few of the obstacles that today’s farmers and ranchers have to navigate to stay on the farm.

While the organizations I am proud to be a member of are all focused on the challenges farmers face right now, we also have to keep our eye on emerging perils that could threaten the family farmers of tomorrow. One of these perils is a series of tax proposals that Congress will consider over the next few weeks. The elimination of “stepped-up basis” from the tax code would burden the next generation of farmers and ranchers with a huge tax bill for capital gains.

A September 2021 report from the U.S. Department of Agriculture’s Economic Research Service (USDA ERS) examined the proposal to eliminate stepped-up basis for inherited assets greater than $1 million for individuals’ estates and $2 million for married couples’ estates while deferring capital gains tax liability on business assets as long as the business remains family operated.

Results from the report suggested that nearly 20% of farms could have an increased tax liability, including 65% of the value of U.S. farm production. Additionally, the report found that across all affected estates, the taxable gain on farm assets averaged $1.8 million per farm family.

In Montana, a $2 million “estate” is a very small amount of deeded land that could support roughly a 100-head operation. The next generation, especially as heirs to operations currently in business, already face difficulty in trying to stay economically viable - which takes a land base of at least 10,000 acres or $5 million today, depending on your location.

We’re appreciative of the work of Sen. Jon Tester in representing the interests of Montana’s farming and ranching families. The senator recently sent a letter to Democratic Majority Leader Chuck Schumer outlining his concerns with the elimination of stepped-up basis. As Tester stated in the letter, “These small family operations need predictability to plan for the transitions that enable their businesses to thrive across generations.”

Congress must follow Sen. Tester’s lead in opposing any change to the tax code that would hurt the continued operation of family farms, ranches and small businesses.

——

Colter DeVries is a member of the Montana Cattlemen’s Association, Montana Farm Bureau, Montana Farmers Union, Montana Stockgrowers Association, RCALF-USA, and the U.S. Cattlemen’s Association.