Defining estate tax regulations for farmers has been a hot topic this year. In an effort to preserve family farms for generations to come, Rep. Jimmy Panetta (D-CA) and Rep. Jackie Walorski (R-IN) introduced the bipartisan Preserving Family Farms Act.
The legislation would help family-owned farms continue operations after a loved one has passed by easing the burden of the estate tax. The bill would modernize the special use valuation provision of the estate tax by increasing the amount of farmland that can be valued for farming operations rather than development value. This would protect family-owned farmland by assessing estate taxes on the actual value of their businesses that they, in many cases, have spent decades cultivating.
“Estate taxes on family-owned farms have forced families to split up the land they have spent generations building,” said Congressman Panetta. “Our Preserving Family Farms Act would ease this burden by ensuring that these farms are appraised by the value of their business, rather than development value. This much-needed fix would preserve agriculture lands and protect many of the Central Coast family-owned farms that provide our food security.”
The Preserving Family Farms Act of 2021 modernizes the special use valuation provision of the estate tax. This valuation allows property to be appraised as farmland rather than its commercial development value when determining estate taxes. Farm and ranch families who choose to use the special use valuation commit to continue operating their farm or ranch business for 10 years. If they stop farming or ranching, sell the farm or ranch outside of the family, or change the use of their property, they must repay the forgiven estate taxes.
Congresswoman Walorski said, “The Preserving Family Farms Act would update existing provisions in the tax code to ensure estate taxes are based on the value of farmland as it is actually used, not its highest potential value if it was sold for development. This commonsense, bipartisan bill would give the next generation of farmers a better chance to carry on their family’s legacy and keep family-owned agricultural businesses going strong.”
The Preserving Family Farms Act would also increase the maximum amount allowed under the Section 2032A exemption from $750,000 to $11 million (indexed for inflation), thus reviving a critically important tool in the toolbox for farm and ranch families across the U.S. If enacted, this legislation will provide a permanent solution to an issue that has long plagued our nation’s producers.
Agriculture groups have been long time supporters of efforts to reduce undue tax burden on farmers and ranchers.
American Farm Bureau Federation President Zippy Duvall said, “Estate taxes can have devastating consequences on family farms. The special use valuation is an important tool to help farmers and ranchers navigate the difficult process of estate planning. Next-generation farmers and ranchers should be able to pay based on the actual use of the land, rather than its potential value as commercial property such as an office or warehouse. We call on Congress to pass this legislation.”
Jerry Bohn, National Cattlemen’s Beef Association President said, “America’s farmers and ranchers deserve certainty in the tax code overall, and they need certainty especially when it comes to the estate tax. Without it, transition planning for the next generation of producers is nearly impossible.”