(The Center Square) – The Biden administration’s proposal to repeal the reinforced base and force recognition and taxation of capital gains on death is troubling to many Kansas farmers.
“If the strengthened base is removed and the forced recognition of gain on death is implemented, along with a lower inheritance tax exemption, agricultural assets such as land and equipment should be liquidated for pay the tax bill, âAaron Popelka, Kansas Livestock Association vice president of legal and government affairs, told The Center Square. âThese adverse tax events would impact all small businesses, not just agriculture. However, agriculture tends to be rich in assets, but poor in cash, and the effects of such policy changes would be devastating. “
Farmers are concerned about the fiscal reconciliation fiscal proposal, as it could significantly disrupt the transition of family farms to the next generation.
The grossed-up basis is the process by which heirs receive a fair market value adjustment for the assets inherited at the time of the deceased’s death. If the base was not adjusted to fair market value, the heirs would receive the descendant’s base, which is usually the price at which the deceased bought the asset, minus any adjustment such as depreciation.
Popelka said the purpose of capital gains tax is to tax an actual sale transaction when a seller receives income from the sale of an asset. Transfers on death are not sales and no cash income is received.
âFor farming families, this means the next generation will have to find money from other sources to pay capital gains tax on the unrealized gain from the transfer,â Popelka said. âIn many cases, this means that the farmland and equipment needed to keep the business going would have to be sold. If the tax bill is large enough, it could lead to the entire sale of the farm or a sufficiently large reduction in the size of some operators. forced to find other jobs.
Popelka said it’s also important to remember that farmland is often bought and held for long periods of time and, as a result, will develop a big difference between core value and fair market value upon death.
âAs a result, it’s very easy to trigger the highest tax bracket on the transfer of even a small piece of land,â Popelka said. “This means the policy would impact small farms as well as large farms, dispelling the myth that it is simply a way to tax the rich.”
Double taxation by removing the exemption from inheritance tax is also a current concern. Popelka said the inheritance tax imposes the full value of a deceased’s estate after the exemption threshold is applied. This means that it would apply a tax rate of 40% both on the basis of assets which were already subject to income tax and on the capital appreciation of the asset which was also subject to capital gains. values ââshould repeal the increased base with forced recognition of the gain becomes law.