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KCOE ISOM: AGRICULTURE SCORES MAJOR WIN IN DEMOCRATIC TAX PACKAGE
Source: KCoe Isom news release

KCoe Isom, a leading agriculture tax and business advisory firm, today applauded the proposed tax package announced by Democrats in the U.S. House of Representatives for dropping previously-suggested changes to the "step-up" in basis. KCoe's tax advisors noted that the proposed language also includes changes that could significantly impact many farmers and ranchers, thereby signaling a need to evaluate and address potential tax impacts before year-end.

"We are pleased that the proposed tax bill does not include changes to the step-up in basis," said Brian Kuehl, Director of Government and Public Affairs for KCoe Isom. "These changes would have presented significant challenges for larger farmers and ranchers seeking to pass their property onto their children. We know that a number of rural and farm-state Democrats weighed in against these changes and we're pleased to see that their voices were heard and the proposed change to tax capital gains at death was omitted."

Other changes in the proposed tax bill, including accelerating the reversion of prior estate tax rates and estate tax exemptions, will have potential to affect farmers without adjustments. According to KCoe's tax advisors, there are opportunities to avoid some of the anticipated negative effects with proper year-end planning.

"Every farmer and other agriculture business owner should be talking with their tax advisors and legal counsel today to evaluate the proposed changes in this bill and to determine what steps they can take today to minimize the impact on their operations," added Kuehl. "There is a high likelihood that some form of this legislation will become law before the end of the year. People should not wait to get on top of these changes."

Also of note, the estate tax exemptions that were doubled in 2017 were set to expire after 2025. The proposed bill would accelerate that expiration to December 31, 2021.

"In anticipation that the estate tax exemption expires at the end of the year, we recommend that farmers and ranchers consider taking advantage of the high exemption levels that will exist for the next three months," said Kuehl. "This could make a significant difference in the amount of taxes that will be eventually paid by your estate."

Additional changes of note for agribusinesses include changes to grantor trusts and an estate tax valuation rule. The proposal states that certain grantor trusts are to be treated as separate from their owners, and valuation discounts for contributions of business interests to grantor trusts would be eliminated. Should this become law it will create income and estate tax complexities around a frequently-used estate planning tool.

Lastly, in a supportive bid to fulfill the Congressional promise not to increase any taxes on farmers, the package sets out to increase the limit of the so-called "special use valuation," which reduces the value of qualified farm real estate when it is inherited by qualified relatives who are actively engaged in the operation.


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