There’s a calm at Kettle Wind Farm on a hot summer day, but storm clouds are forming some 50 miles north in the nation’s capital.
Stephanie Cornnell’s parents established the 800-acre Nokesville, Virginia, farm in 1968. These days, she runs it with her father, Paul House, and her brother, growing turf, row crops, and grain. It’s one of about 2.2 million family farms left in the United States, but proposed changes to the tax code could dramatically affect the clan’s livelihood — and nest egg.
“It’s like a legacy,” Cornnell said. “It’s hard to put it into words.”
“This land and stuff, we didn’t build it just for the todays, this is for the future,” she added.
President Joe Biden is proposing raising the capital gains tax and changing the way inherited assets are valued in order to pay for the $1.8 trillion American Families Plan.
While capital gains represent the appreciation of an asset from the time it is acquired to the time it is transferred, the value of certain property left to an heir can be “stepped-up” from the original cost to the present value for tax purposes. That typically reduces the capital gains liability.
The Biden proposal would exempt couples from capital gains taxes on the first $2 million they inherit, and the administration assures family farmers that no capital gains taxes would be due as long as the farm stays in the family.
Like many family farmers, the House family’s savings are almost entirely tied up in its farm. If the family passes the farm down, the next generation may be hard-pressed to earn a living from it. If it’s sold, the family could be looking at an enormous tax bill.
“Agriculture, we’re asset-rich and cash-poor,” said Veronica Nigh, the American Farm Bureau Federation’s acting chief economist.
But Ben Ritz, of the Progressive Policy Institute, says avoiding taxes on huge capital gains just so a new generation can inherit valuable property or sale proceeds is unjust.
“I think people who are inheriting these assets are already starting with an advantage, not based on their own work but previous generations’, and I think it’s worth trying to make sure everyone is competing on an even playing field,” Ritz said.
He said the so-called step-up in basis should be eliminated and those who inherit farms should pay taxes on the increased value of what is left to them.
“Every dollar we are not raising from repealing stepped-up basis or setting a more fair structure for capital gains is a dollar we have to raise by taxing a teacher’s income or an entrepreneur’s investment,” Ritz said.
Cornnell hopes to continue the family tradition but is watching closely to see how changes to the tax code affect the future of her family’s farm.
“The farm is my life,” she said. “It’s more than a job, it’s a lifestyle,” Cornnell said.
