The Tax Cuts and Jobs Act provisions are set to sunset at the end of calendar year 2025. With this sunset on the horizon, those involved in the farming and agribusiness industries may want to take note and adjust their business and estate plans accordingly.
The first set of changes affect income taxation. The sunsetting of many of the income tax provisions will affect those in the farming and agribusiness industries. According to researchers with the United States Department of Agriculture’s (USDA) Economic Research Service, tax liabilities for farms and farm households will be affected the most due to the expiration of the lower income tax rates and related provisions. Farms with greater than $5 million in gross cash farm income (GCFI) are likely to see the largest dollar increase in tax liability of $27,588 (5.4%), and farms with GCFI between $150,000 and $350,000 are likely to see an increase in tax liability of 15.6%, (although only $2,283). Similarly, the elimination of the qualified business income deduction will increase the tax liability of farms, but particularly those with $5 million or more GCFI.
Additional upcoming tax changes impact the accelerated depreciation options available for farm equipment. Under the provisions of Internal Revenue Code (IRC) §168(k), the accelerated depreciation of these assets is currently phasing out and will continue to decrease over the next several years. This is expected to increase tax liabilities significantly for farms with greater than $1 million GCFI. Before these opportunities phase out completely, you may wish to discuss your business strategies with us or your tax advisor.
The second set of changes affect estate and gift tax. Another big change on the horizon relates to the estate, gift and generation tax exemptions. Currently the lifetime gift and estate tax exemption is $13.61 million. However, the current gift and estate tax exemption amounts are currently slated to be cut in half at the end of 2025. This means clients have less than two years to decide how to plan for and take advantage of their unused, higher exemption amounts before they disappear. It is time to discuss your options, make plans and act while you still can.
People who may need to make estate planning changes before potential tax changes are enacted include:
- Individuals with estates above $6.8 million and married couples with estates above $13.6 million, each of whom will be affected by the decrease in exemption.
- Owners of farm businesses or other closely held agribusinesses who want children and grandchildren to continue to own the business.
You still have the time to engage in planning before the tax exemption amounts decrease. But the window to do so is narrowing. For this reason, we encourage you to contact us to begin the important work of designing and implementing your estate plan.
Please contact Danelle Harrington, Sean Cook, Sam Poortenga or your Warner attorney to discuss these upcoming income and estate tax changes.
