NICK GOSNELL
Hutch Post
HUTCHINSON, Kan. — Items in the proposed 2023 fiscal year federal budget could really negatively impact long-term family farms. Kansas First District Congressman Tracey Mann sees the danger this could pose for family farmers.
"There is this provision in there that talks about a one-time capital gains tax on assets owned for 90 years, which would hit our generational family farms square in the mouth, with potentially a big tax," Mann said. "We raised the flag. We call it the farm-killer tax."
The proposal would outline that trust assets must be adjusted to reflect the trust's value as determined by current market conditions every 90 years beginning with any new trust after 1940. The rule would be the same for partnerships or any other non-corporate owned entity. If the loss of the step-up basis that is proposed also kicks in, that value would get reset at the death of each generation.
"Death becomes a tax recognition event, not when the heir sells it, if the heir sells it," said Roger McEowen, Kansas Farm Bureau Professor of Agricultural Law and Taxation at the Washburn University School of Law. "Remember, under the current rules, if the heir acquires it, the heir could hold it for 50 or 60 years and then leave it to the next generation and they would do the same thing and there's never a tax event. What this does is say that death itself is a tax triggering event, so that appreciation gets taxed."
The 90-year number is derived from another provision in tax law.
"It's the uniform statutory rule against perpetuities that sets a rule on how long you can own property in certain types of trusts," McEowen said. "That has to kick out at that point in time and you have a tax event. That's where the 90 years is coming from. They just tagged that provision, copied it and pasted it over into another piece of legislation. What that is saying is, if that farmland is not held outright, but is held in a trust and that is a trust that has these provisions in it that allows it to stay in there for the length of the rule against perpetuities. Kansas has a much longer rule than that and some states will have a 500-year-rule on that and some states don't even have a rule against perpetuities."
The problem, obviously, is that farmers are generally land-rich but cash poor, so it's likely a lot of ground would need to be sold to pay those one-time taxes. With that said, these are proposals that are not likely to get a lot of support in Congress.
"The politics are not there for any of this in the budget," McEowen said. "This is the same refried stuff that was tried last year in what's known as Build Back Better. The provisions, such as this, while they were initially included in the House version, even the version that the House passed did not contain these provisions. It got stripped out of the House. It couldn't even pass the House, so they stripped a whole bunch of tax stuff, this was one of them, to get the bill passed through the House, let alone the Senate."
Of course, with it being an election year and a decent chance that control of at least one if not both of the House and Senate could flip to Republican control, it makes very little sense to try to ram this through prior to November. Even if that happened, there would likely be ample chances for Republicans, once in control, to undo the provisions before 2030.