North Dakota Farm Burea (NDFB) is weighing in on a tax plan that they say could be devastating for generational farmers and family businesses.
To help fund its American Families Plan the Biden Administration has proposed eliminating the step-up in basis (also referred to as “stepped-up basis”).
It’s a tax code that adjusts the value of an asset when it passes from an owner to their heir with the higher market value of the asset at the time of inheritance.
“Think about it this way: if I am a farmer and my father and I have been farming together, and dad passes away, then his estate is taxed according to the equity that has been built up all the years that he has been farming, and so at his free-market value at the time of his death is where I would have to be paying estate taxes under stepped-up basis. You’re paying at the step up to what the equity is right now at fair market value versus what it was back when he purchased that equity,” explains NDFB Director of Public Policy Pete Hanebutt.
Hanebutt says stepped-up basis helps generational businesses cope with capital gains taxes. If it were to be removed, it would expose heirs to all the years of taxes from the time that the farm or business started.
North Dakota Farm Bureau along with the American Farm Bureau and 200 other Ag groups are calling on elected officials to uphold stepped-up basis.
“That difference in between could be a huge amount and expose you to all that tax in between, so it’s a way that you can manage generational debt, generational equity, so that you’re not paying the taxes according to every capital gain that’s been made since say that 1970’s. You’re paying it according to 2020 numbers,” explains Hanebutt.
Hanebutt tells KX that the last time there was this much pressure to remove stepped-up basis was under the Clinton Administration.
However, it is not a bi-partisan issue. Former Montana Democratic U.S. Senator Max Baucus has voiced his support for the continuation of stepped-up basis.