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Iowa Farmland Owners Could See Tax Increase

The American Families Plan, proposed by the Biden administration in April, would provide new social programs to millions of U.S. households. A new Iowa State University Study found that some of Iowa’s farmland owners could face a substantial increase in taxes to pay for the proposed $1.8 trillion plan.

“Because of the proposed increase in rates, we estimate that, on average, a full-time farmer owning 358 acres of farmland would see tax liability from a lifetime sale increase from $475,248 to $860,572, an 81% increase, or from 14.5% to 26% of fair market value,” said Kristine Tidgren, director of Iowa State’s Center for Agricultural Law and Taxation.

Tidgren authored the study with Wendong Zhang, an associate professor of economics at Iowa State’s Center for Agricultural and Rural Development. Zhang said that their study looked at 80% of Iowa’s farmland owners, including those that own land as sole owners, joint tenants, tenants in common, and through a revocable living trust. He said that they did not study other owners that own farmland in corporations, partnerships, life estates or irrevocable trusts that could face new tax liability as well.

“Among full-time farmers with any ownership interest in a whole farm of 200 acres or more, we estimate that 62% of owners and 79% of acres would be impacted by the AFP tax at death or gift, even with a $1 million exclusion. That number jumps to 99% of owners and 98.2% of acres when the whole farm size reaches 500 acres or more,” Zhang said. These estimates are based solely upon the owner’s interest in farmland.

The authors said that the impact of the AFP depends upon farm size and appreciation. In that way, a small farm that has increased substantially in value since the owner acquired it may be subject to tax while a large farm that was recently inherited would not face the new tax. “Identical farms across the road from each other would have completely different outcomes — one owner might owe $1 million in tax at death, and the other might owe none,” Tidgren said.

Read the study.

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