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Biden’s capital gains increase, lost step-up-basis worrisome for farmers & families

A farm tax and accounting expert says there is good reason to be concerned about potential tax changes President Biden campaigned on.  Neil Narveson with Compeer Financial tells Brownfield the possibly higher Biden administration capital gains taxes and eliminating what is called step-up-basis can get very expensive for property owners selling or transferring to the next generation. “This isn’t just amongst farmers, it’s amongst everybody. Let’s say your parents have a house and it’s not on the farm, it’s just a house and they die and they pass it to you, that’s going to get hit with not having stepped-up-basis just like everything else, so this is very concerning for many of our clients, especially those who have farms that could be passed on to the next generation in the coming years.”

Narveson says the step-up-basis allows calculation of capital gains taxes from the fair market value at the time of transfer or sale, not the difference between the current value and the original purchase price many years ago.  He says that difference might make the taxes too high to pay. “It’s possible that it could be enough to really bankrupt a lot of farmers out there if they don’t have the cash sitting around to pay that tax on that transfer.”

Narveson says the Biden administration promotes the tax changes as only affecting rich people, but he says it would affect most people and is a nightmare to think about.  Narveson advises property owners not to make any sudden moves. “If you hadn’t been planning on transitioning and getting out of it, sit tight. Don’t jump ship just because we’ve got a new administration because we don’t know where they’re going to go.”

Narveson encourages people to contact their members of Congress and encourage them not to support these potential tax changes.  He says Compeer’s board is also planning to meet virtually with elected officials about these tax issues in March.

The current long-term maximum capital gains tax rate is 20% for more than $469,051.  An analysis by The Tax Foundation before the election claims Biden’s plan would tax capital gains at 39.6% for income above a million dollars.  Their analysis also says repealing the step-up-basis would likely lead to the capital gains tax on appreciation being carried over to a property recipient when the property is transferred before the original owner’s death.

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