Following President Biden’s address to Congress, the USDA has outlined plans for the American Families Plan as it relates to agriculture.

The proposed legislation will still have to pass both the House and Senate.

The American Families Plan, the USDA says, includes critical tax reform to ensure that the wealthy pay their fair share of taxes in order to finance essential investments in workers and families, including childcare, nutrition, higher education and more. One of those reforms, according to the USDA, is a change in the way capital gains are treated in our tax system so that, for people making more than $1 million, the tax system no longer favors income from wealth over income from work. The plan won’t raise taxes on anyone making less than $400,000 a year.

Part of this plan to make sure the wealthy pay their fair share is a proposal to close the “stepped-up basis” loophole for wealthy estates so that enormous fortunes do not completely escape taxation. Under the proposal, unrealized capital gains (those that have never been previously taxed) are taxed at death above $2 million in gains per couple. But this won’t affect family farms that stay in the family.

• Under this proposal, estimates indicate more than 98% of farm estates will not owe any tax at transfer, provided the farm stays in the family. The tax the remaining less than 2% would owe, would be on their non-farm assets.

The USDA says President Biden recognizes the importance of agriculture and family farms to the American economy and way of life. The American Families Plan protects family farms and ranches in two key ways:

• No capital gains taxes at death for family farms. This plan includes a special protection for family-owned farms and businesses. It defers any tax liability on family farms as long as the farm remains family-owned and operated. No tax is due if the farm stays in the family. No one should have to sell a family farm they inherit to pay taxes and the president’s tax reform guarantees that.
• $2 million exclusion from increased capital gains for all married couples. This plan also excludes the first $2 million of gains per couple ($2.5 million if the farm also includes the family home) from capital gains tax and heirs continue to get step up in basis on those first $2 million in gains. If an heir decides to sell the family farm, the first $2 million in gains is tax free.

How the President’s Capital Gains Reforms Affect Family Farms:

• A married couple with $900,000 of farm gains and $200,000 of non-farm gains passes the farm onto their children. No capital gains taxes are owed, even if they sell the farm because the $1.1 million in gains are below the $2 million per-couple exemption.
• A married couple with $3.0 million of farm gains and $250,000 of non-farm housing gains passes the farm onto their children. No taxes due as long as the children keep the family farm.

To learn more about the American Families Plan, visit the White House.

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