Income tax seen as larger succession burden for farm operations
A sponsored article argues that income tax, rather than the federal estate tax, poses the greater financial risk to farm succession. It cites USDA Economic Research Service projections that only about 89 of 39,988 farm estates in 2023 were expected to owe federal estate tax. Depreciation deductions and recapture rules can leave equipment and buildings with low tax basis, creating tax obligations when those assets are sold.
A sponsored piece contends that income tax, not federal estate tax, is the main succession risk. It points to USDA Economic Research Service projections: among about 39,988 farm estates from 2023 principal operator deaths, only roughly 89—about 0.2 percent—were expected to owe federal estate tax.
The article explains that depreciation lowers asset basis, so equipment and buildings may trigger recapture when sold. Equipment falls under Section 1245; buildings under Section 1250. Gifts generally carry over the donor’s basis under Section 1015, while inherited assets may receive a fair-market-value step-up under Section 1014 if included in the estate.
This framing could shift how farm families and their advisers plan succession, potentially focusing more on income tax exposure from low-basis equipment, buildings, and land. Heirs who sell inherited or gifted assets may face different tax outcomes, which could affect decisions about whether to keep, transfer, or liquidate operations. Rural economies and next-generation farmers may feel indirect effects if tax planning influences asset transfers.