Farmers’ tax liability to rise as tax breaks expire in 2025

Farmers would face an increased federal tax liability of billions of dollars following the expiration of Trump-era tax breaks in 2025, said USDA economists. The biggest impact, estimated at a combined $4.5 billion, would come from reduced income tax rates on individuals, an increased standard deduction, a cap on the deduction for state and local taxes, and the elimination of the personal exemption.

“While the corporate tax rate reductions created in the [2017 Tax Cuts and Jobs Act] were permanent, some changes to federal individual income and estate tax policies were temporary and are scheduled to expire in 2025,” said the Economic Research Service report written by Tia McDonald and Ron Durst. The changes would affect 97.6 percent of family farms, they said.

The largest farms would experience the largest incomes in estimated income tax liability measured in dollars. The largest increases in percentage terms would fall on farm households with moderate sales, said the ERS.

The second-largest impact, estimated at $2.2 billion, would come from expiration of the qualified business income deduction (QBID) of 20 percent on profits passed through to households from farms and other businesses not organized as corporations. About 45 percent of farm households benefit from the deduction, estimated the USDA. It said QBID was created “to provide parity with the reduction in corporate taxes.”

The 2017 tax cut increased the exemption from the federal estate tax to $11.18 million for farms and other estates. The exemption would drop to $6.98 million in 2025. The portion of farm estates that would owe estate taxes would increase to 1 percent from the current 0.3 percent, said the ERS. The amount paid in federal estate taxes would double to $1.2 billion.

In the report, the ERS also analyzed the effect of reviving the child tax credit that expired in 2021, and making it permanent.

The report, “An analysis of the effect of sunsetting tax provisions for family farm households, is available here.