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AFBF Fights the Capital Gains Tax Hike

AFBF submitted comments regarding the impending capital gains tax rate hike, which will increase from 15% to 20% next year.

Published on: Sep 20, 2012

The American Farm Bureau Federation today submitted a statement to the House Ways and Means and Senate Finance Committee's joint hearing on tax reform, urging them to reform the capital gains tax because of its detriment to young and beginning farmers.

AFBF's statement said that the tax makes it difficult for current farmers to pass the torch to a new generation.

Capital gains taxes apply when land and buildings from a farm or ranch are transferred to a new or expanding farmer while the owner is still alive. This can occur when a farmer wants to expand his or her farm or ranch to take in a son or daughter, or when a retiring farmer sells his or her business to a beginning farmer.

AFBF submitted comments regarding the impending capital gains tax rate hike, which will increase from 15% to 20% next year.
AFBF submitted comments regarding the impending capital gains tax rate hike, which will increase from 15% to 20% next year.

"Since approximately 40 percent of farmland is owned by individuals age 65 or older, capital gains taxes provide an additional barrier to entry for young farmers and ranchers at a time when it is already difficult for them to get in to the industry," the statement said. "Capital gains tax liabilities encourage farmers to hold onto their land rather than sell it, creating a barrier for new and expanding farms and ranches to use that land for agricultural purposes."

AFBF said this added cost also increases the likelihood that farm and ranch land will be sold outside of agriculture for commercial uses to investors who are willing to pay more, causing agricultural land and open space to be lost forever.

The capital gains tax can hurt farmers because agriculture requires large investments in land and buildings that are held for long periods of time and account for 76% of farmers' assets, according to the AFBF. Further, they report, 40% of all farmers report some capital gains; nearly double the share for all taxpayers. And the average amount of capital gains reported by farmers is about 50% higher than the average capital gain reported by other taxpayers.

"Because capital gains taxes are imposed when buildings, breeding livestock and land are sold, it is more costly for producers to shed unneeded assets to generate revenue to adapt, expand and upgrade their operations," the statement said. "This is neither good for the long-term prosperity of farm and ranch operations or for the rural economies their operations help sustain."

The top capital gains tax rate will increase by a third on the first of the year, from 15% to 20%. AFBF supports a permanent extension of the 15% rate.