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By Lana Robinson
Field Editor
A new bill (H.R. 2034), introduced by Reps. Earl Pomeroy (D-N.D.) and Lee Terry (R-Neb.), would relieve land owners of capital gains taxes provided they sell land to new farmers and ranchers or other buyers who use the land for agricultural production. Farm Bureau supports the legislation.
Si Cook, Texas Farm Bureau programs director, who coordinates the state organization's Young Farmer and Rancher program, sees several advantages to the proposed measure.
"This can make it easier for a person in agriculture to sell their property and get out of the business while, hopefully, keeping it in production, and it also directs attention to the capital gains issue," said Cook, emphasizing that Farm Bureau believes capital gains taxes should be repealed.
Under the bill, agricultural producers would receive 25 percent off their capital gains taxes regardless of who purchases their land or for what purpose. Land sellers whose land will continue to be used for agricultural production will see a 50 percent reduction of their capital gains taxes. Land sellers who sell to first-time farmers or ranchers would have all their capital gains taxes eliminated. The maximum amount of capital gains taxes that could be excluded under this bill is $500,000 per year.
Farm Bureau has long maintained that farming and ranching is a capital-intensive industry that requires huge investments in buildings, equipment and land to produce food and fiber. The organization has argued that capital gains taxes threaten the transfer of farmland between producers and puts at risk the efficiency and profitability of the industry.
Cook said because capital gains taxes are imposed when buildings, breeding livestock and farmland are sold, it is harder for producers to sell unneeded assets to adapt and upgrade their operations.
"Many can't afford to quit farming," he suggested.
Under the current system, many farmers and ranchers pay high capital gains taxes because of the length of time they hold assets. According to the American Farm Bureau Federation, on average, farmers own land for 30 years during which time it increases in value five to six times. The tax threatens the transfer of farmland between agricultural producers. Today's average farmer is 53 years old. As farmers consider retirement, they set the selling price high enough to recover the cost of capital gains taxes. This increases the price of farm assets needed by beginning or expanding farmers and ranchers and increases the likelihood that farmland will be developed for other uses.
Cook agrees.
"Two issues are uppermost in the minds of most beginning farmers and ranchers," he said. "First on the list is probably profitability. You've got to make some money. Second is the availability of land. They have a hard time getting land to produce on. This particular legislation highlights that problem. It gives older producers the incentive to help beginners into the business. In return, it helps them tax wise. H.R. 2034 directs the older farmer's attention to seek out his replacement, so to speak, somebody to keep that land in production. And this is more than just the personal 'feel good' benefit. It's a financial benefit."
Cook said H.R. 2034 takes in consideration the aging face of agriculture, which pegs the average age of today's farmer at 56 to 59 years.
Short of repealing capital gains taxes, AFBF believes Congress should: 1) Reduce the maximum capital gains tax rate to no more than 5 percent and index capital gains for inflation; 2) Make permanent the maximum rate of 15 percent passed in 2003; and 3) Exclude capital gains taxes on the sale of agricultural land that remains in production.
Cook said H.R. 2034 has a long way to go before passage.
"That 25 percent off a farmer's capital gains taxes regardless of who purchases their land or for what purpose is going to be a tough deal," he said.
