While understanding tax law may seem like a task better left to the experts, changes in legislation have an impact on agricultural producers across the country. In a webinar hosted by Women Managing the Farm and the Kansas State University Department of Agricultural Economics, Roger McEowen, a professor of agricultural law and taxation at Washburn University School of Law, gave producers a rundown of the latest Build Back Better Act.

Also known as H.R. 5376, the bill passed in the U.S. House in a 220-213 vote and has now moved to the Senate for consideration.

“I would say it's not nearly as bad from an agricultural standpoint as it could’ve been,” McEowen said. “I think that the provisions that were struck are not likely to be added back by the Senate.”

Initial proposals to modify the “stepped up” basis rule at death are just one of many items removed from the bill.

“That’s a big one for agriculture. We were very concerned about that,” McEowen said. “Any change to the rule that says that you get a fair market value basis at death in the hands of the heirs would affect all agricultural states.”

A proposed reduction in the federal estate or gift tax unified exemption equivalent was also struck from the bill.

“That's going to stay at the current 11.7 million, which will be 12.06 million next year,” McEowen said. “So that stays on the same trajectory as in the Tax Cuts and Jobs Act. Now, what that does is push off the reduction down to 5 million plus an inflation adjustment to 2026.”

Other proposed increases in corporate tax rates, top individual marginal rates, top capital gain rates and value reduction for land were also ultimately removed from the bill, as well as changes to grantor trust rules and the present interest annual exclusion rule.

The Senate will be considering several changes that will have an impact on producers. One change that will affect individuals is paid leave being excluded from gross income.

 “This one is retroactive back to the beginning of this year, so if this stays in the bill, for those individuals in high tax states, this is a benefit for them,” McEowen said. “That’s not necessarily limited to situations where you are in a high tax state. You can have people that have multiple homes or have a lot of farm and ranch land paying a lot of property tax on that.”

Within this change, state and local tax deductions would increase from the current $10,000 to $80,000 on a married filing joint return and $40,000 on a married filing separately return or an estate/trust.

 “This is an interesting one in terms of impact. This is actually a tax increase followed by a tax cut,” McEowen said. “The current law is a $10,000 cap until we get to 2026 and then there’s no limit. Now, you go to $80,000, which is a tax cut, and then it's going to be $80,000 compared to what TCJA would have been, which was unlimited, so that's a tax increase starting in 2026 and going to 2030.”

Modifications to child tax credits will implement an IRS recapture provision.

“This is one of the tighter things that they did to really turn the screws down on this,” McEowen said. “They said the IRS can recapture, in other words get the tax benefit back of having provided the child tax credit, anytime the IRS determines that a child was taken into account when determining the annual advance amount due to fraud or intentional disregard of the applicable rules. So, if there's fraud in trying to claim a child as your child, for example, when they're not really your child to chin up another tax credit, then the IRS has the authority to claw that back.”

The bill also extended the 2021 version of the child tax credit through 2022, made it fully refundable and increased the age limit to 18.

“What happened midstream this year is they front loaded the child tax credit and instead of claiming it fully on the return for the previous year, you can get a 12th of what you're anticipating the credit would be every month,” McEowen said.

Changes to earned income tax credit, Pell Grants and Premium Assistance Tax Credit as well as surcharges on high income earners may also have an impact on individuals if the Senate passes the bill, McEowen said.

McEowen said producers should pay attention to Senators Manchin and Sinema, as they will have a significant impact on whether the bill will be passed.

“Manchin and Sinema hold the power in the Senate,” McEowen said. “Whatever they decide is going to determine the fate of this bill, and maybe if it goes through what provisions are in and what provisions are out. There will be no Republicans that support this. I don't see that at all. And you have to have all of the Democrats support it because the Senate is split 50-50. If Manchin or Sinema or both decide, they don't want to support it, then the bill doesn't go anywhere.”

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