Ryan Conklin

by Ryan Conklin, Wright & Moore Law Co., LPA

If you have been following the news on Capitol Hill in recent weeks, you may have heard about proposed tax code changes. The STEP Act outlines several major revisions to gifting rules, capital gains, and stepped-up tax basis. Given the proposed changes to tax basis rules, I think it’s a good time to talk about some basics of tax basis.

According to the IRS, tax basis refers to “the amount of your capital investment in property for tax purposes.” This capital investment can be what you paid in cash, assumed in debt commitments, or exchanged for other property or services. Basis can be modified through events like adding improvements to real estate, inheritance, or through depreciation.

Let’s look at an example

Pretend you purchase a 100-acre farm in 2000 for $1,000 per acre. Your tax basis would be the $1,000 per acre purchase price. Fast forward 20 years, and your heirs inherit the property after your death. After you pass away, the farm appraises at $10,000 per acre. This new appraisal value constitutes the new tax basis because the heirs receive a “stepped-up” basis after your death.

A similar outcome is achieved with farm equipment. If you buy a tractor for $100,000, the purchase represents the basis. From there, if you use applicable tax rules to depreciate the purchase, the new basis is the depreciated amount. At death, the tractor is reappraised, a new basis is established, and the tractor can be re-depreciated by the new owner.

What if stepped-up basis is eliminated

The elimination of stepped-up basis could be catastrophic for family businesses. It could result in new taxable events stemming from gifts, moving assets into trusts or LLCs, sales of depreciated assets, or through inheritance. The capital-intensive and debt-reliant nature of agriculture means many farms could struggle with these tax bills. To cap it off, stepped-up basis could be hard to come by under this new statutory scheme.

Please keep in mind that the STEP Act is only a bill, and must clear tight margins and intense scrutiny in both houses of Congress. American Farm Bureau distributed an action alert in early April asking members to lobby their representatives to oppose this bill. I would urge readers to join in this effort, as the loss of certain tax basis provisions could jeopardize farm survivability nationwide.

Consult your tax professional for more information to help your family or business.

Wright & Moore Law Co., LPA has a rich heritage in Ohio agriculture. Since 1988, our firm has proudly assisted farmers, rural residents, and landowners from all over the state with their farm succession planning and agricultural legal needs. We would be happy to discuss your family goals and how to meet them. To learn more about Wright & Moore or schedule a meeting, call 740-990-0750 or visit OhioFarmLaw.com.

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Bethany Starlin

Hocking County Farm Bureau

Available scholarships
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Matt Aultman

Darke County Farm Bureau

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With not growing up on a farm, I’d say I was a late bloomer to agriculture. I feel so fortunate that I found the agriculture industry. There are so many opportunities for growth.
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Jenna Gregorich

Coshocton County Farm Bureau

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Labor has always been an issue, mainly because we are a seasonal operation. So that's a challenge finding somebody who only wants to work three months out of a year, sometimes up to six months.
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Mandy Way

Way Farms

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Jaclyn De Candio

Clark County Farm Bureau

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Austin Heil

Hardin County Farm Bureau

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Mary Smallsreed

Trumbull County Farm Bureau

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