Capital Gains Taxes (2024)

Issue Overview

To remain efficient and profitable, farmers and ranchers must have the flexibility to change their businesses to be responsive to market signals from American and overseas consumers. Because capital gains taxes are imposed when buildings, breeding livestock and farmland are sold, the higher the tax the more difficult it is for producers to shed unneeded assets to generate revenue to adapt and upgrade their operations.

Background

Capital gains taxes are due when farm or ranch land, buildings, breeding livestock and timber are sold. The tax is owed on the amount that the property increased in value since it was purchased. The current top capital gains tax is 20 percent. Farmers and ranchers often pay the top rate (which is assessed on high income taxpayers) because their capital gains can be realized in a single year, for example when a farm is sold.

Starting or expanding a farm or ranch requires a large investment because of the capital-intensive nature of agri-business. In 2020, farm real estate such as land and buildings represented 82 percent of farm or ranch assets. The higher the capital gains tax rate, the greater the disincentive to sell property or alternatively, to raise the asking price. If landowners are discouraged to sell, it can be harder for new farmers to acquire land and hurt agriculture producers who want to buy land to expand their business to include a son or daughter.

Our Position

Farm Bureau supports eliminating the capital gains tax. Until this is possible, the tax rate should be reduced and assets should be indexed for inflation. In addition, there should be an exclusion for agricultural land that remains in production, for transfers of farm business assets between family members, for farmland preservation easem*nts and development rights, and for land taken by eminent domain. At the very least, capital gains taxes should not be collected at death, and the unlimited step-up in basis of inherited assets should continue.

FAQs

Are there any loopholes for capital gains tax? ›

Use a 1031 exchange for real estate

Internal Revenue Code section 1031 provides a way to defer the capital gains tax on the profit you make on the sale of a rental property by rolling the proceeds of the sale into a new property.

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How does IRS check capital gains? ›

Capital gains and deductible capital losses are reported on Form 1040, Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040, U.S. Individual Income Tax Return. Capital gains and losses are classified as long-term or short term.

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What is a simple trick for avoiding capital gains tax? ›

A few options to legally avoid paying capital gains tax on investment property include buying your property with a retirement account, converting the property from an investment property to a primary residence, utilizing tax harvesting, and using Section 1031 of the IRS code for deferring taxes.

What is the 6 year rule for capital gains tax? ›

Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.

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How do billionaires avoid capital gains tax? ›

Billionaires (usually) don't sell valuable stock. So how do they afford the daily expenses of life, whether it's a new pleasure boat or a social media company? They borrow against their stock. This revolving door of credit allows them to buy what they want without incurring a capital gains tax.

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What expenses can I offset against capital gains tax? ›

Allowable deductions for capital gains

The acquisition and creation of the asset concerned.
Where incurred as incidental costs of acquiring an asset.
For enhancement of the asset.
To establish, preserve or defend title to or rights over the asset.
They are incurred as the incidental costs of disposal of the asset.

What is the 2 of 5 rule for capital gains? ›

When selling a primary residence property, capital gains from the sale can be deducted from the seller's owed taxes if the seller has lived in the property themselves for at least 2 of the previous 5 years leading up to the sale. That is the 2-out-of-5-years rule, in short.