As the Trump-era tax breaks are set to expire in 2025, farmers will face an increased federal tax liability of billions of dollars, according to the USDA.
Hitting the hardest at a combined $4.5 billion, will be reduced income tax rates on individuals, an increased standard deduction, a cap on the deduction for state and local taxes and the elimination of the personal exemption.
In a report written by Tia McDonald and Ron Durst for the Economic Research Service (ERS), the changes will affect 97.6 percent of family farms, stating that while corporate tax rate reductions were permanent, the 2017 Tax Cuts and Jobs Act made individual income and estate taxes temporary.
According to the ERS, the largest farms would experience the largest incomes in estimated income tax liability measured in dollars, while the largest increases in percentage terms would fall on farm households.
Also impacting farms, estimated at $2.2 billion, would be the expiration of the qualified business income deduction of 20 percent on profits passed through households from farms and other businesses not organized as corporations. The USDA estimates about 45 percent of farm households benefit from the deduction.
The federal estate tax in the 2017 tax cut increased the exemption to $11.18 million for farms and other estates but would drop to $6.98 million in 2025. The amount to be paid in federal estate taxes would double to $1.2 billion.