Expiring Income, Estate Tax Provisions Will Increase Taxes on Farmers, Study Finds

Sunsetting provisions of recent major tax legislation benefiting individuals and businesses are expected to raise tax bills on farm households of all sizes, though the impact of specific lapsed temporary changes will vary, according to new research.

The study, released February 27 by the US Department of Agriculture Economic Research Service, analyzed the tax implications of expiring provisions of the Tax Cuts and Jobs Act of 2017 (TCJA; PL 115-97) and the American Rescue Plan Act of 2021 (ARPA; PL 117-2) on the farm community. These include pandemic-era boosts to the Earned Income Tax Credit and the Child Tax Credit that already reverted back to pre-COVID levels and temporary income and estate tax provisions expiring in 2025.

In total, the authors estimate that the expiration of TCJA and ARPA provisions will increase farm households’ income tax liabilities by $8.9 billion and estate tax liabilities by $647 million the following year. “The sunsetting provisions that would have the largest impact on farm households (on average) are those provisions providing reduced individual income tax rates, an increased standard deduction, a cap on State and local tax deductions, and the elimination of the personal exemption-which would result in an increase in total tax liability of $4.5 billion for all farm households,” the report found.

One expiring provision the study singles out is the 20% deduction of qualified business income for passthrough businesses under the TCJA, which is expected to raise tax liabilities on 45% of all farm households by an average of $2,464. Known as the qualified business income deduction (QBID), the benefit only applies to businesses with positive income, meaning farms that report losses do not qualify.

“For retirement and low-sales farms, the elimination of the QBID increases farms households’ average tax liability by less than $1,000 each,” the authors predict. “For moderate sales and midsize farms, the elimination of the QBID increases farm households’ average tax liability by $3,068 and $5,678, respectively. For large and very large farms, elimination of the QBID increases farms households’ average tax liability by $11,868 (8.5 percent) and $87,219 (14.1 percent), respectively.”

The TCJA also doubled the estate tax exemption to $11.18 million for single filers and $22.36 million for married couples through 2025. After the provision expires, the percentage of farm estates that are forecasted to owe federal estate tax will increase from 0.3% to 1%. Female principal operator (PO) farm households are estimated to have an increased share, from 0.6% to 1.5%.

“The percent of farm estates that would be required to file an estate tax return would increase from 1.1 percent to 3.9 percent,” the study found. “Since a lower exemption level would expose more of the estate’s value to taxation, the average estate tax rate for taxable farm household estates would increase from 14.6 percent of the estate’s total value to 14.7 percent.”