In this file:
· John Phipps: A Major Misconception About Step-Up in Basis and Farmland Inflation
· Producers Should Look At Operating Plan When Dealing With Proposed Budget
John Phipps: A Major Misconception About Step-Up in Basis and Farmland Inflation
By U.S. FARM REPORT
via AgWeb - June 3, 2021
I spoke a few weeks ago about the rationale – or lack of it – behind the basis step-up at death. Readers stepped up to offer their thoughts.
Tom Edgar from Wolfcreek, West Virginia thinks it’s about inflation:
“In many cases the gain was due in large part to three decades of inflation. In other words, you pay tax on inflation. So, when you die your heirs get the stepped up basis and do not pay that tax on the inflation of long held assets.”
This seems reasonable but the numbers don’t show this to be true. The ERS at the USDA tracks the effect of inflation (or to put it another way, less valuable money) on farmland prices. This graph compares the two. The distance between the lines is accumulated inflation, which is why they converge on the right. Also note it ends last June so the whopping increases we’ve seen in recent auctions aren’t included. Roughly one-third of the price increase in land is from inflation effects, but this is essentially self-cancelling, since you are paying the taxes with those less-valuable 2020 dollars. Farmland is worth more now because it generates more income than before, and farmers especially attach economic importance to ownership. This is a real value gain.
Randy Sharlow thinks children shouldn’t have to pay for parental success.
“I for one don’t look at it as something the government is giving me (my heirs), but as a lifetime accumulation on which I am not being penalized. I don’t mind paying my fair share of taxes, but my children should not have to pay for any good financial decisions I have made.”
This is mostly an argument against capital gains taxes...
more, including chart, video [3:37 min.]
Producers Should Look At Operating Plan When Dealing With Proposed Budget
Radio 570 WNAX (SD)
Jun 4, 2021
President Joe Biden has released his proposed 2022 budget which includes $6 trillion in spending as well as controversial tax provisions. Included is long term capital gains and qualified dividend income being subject to a nearly 40 percent tax ret on net capital gains over $1 million of taxable income. SDSU Extension Risk Business Management Specialist and Economist Matt Diersen says producers need to be aware of this proposal and look at their five-year operating plan.
He says those proposed tax changes will likely have some impact on those adding to or downsizing their operation or selling off part of it.
Diersen says producers also need to figure out what the long term ramifications are to their ag operations should the President’s budget provisions get approved by Congress...
more, including audio [1:13 min.]