Overview of the Biden Administration's Proposed Tax Changes for 2025: Impacts on Farm Families

Income Taxes:

• S Corporation Changes: The administration proposes that all profits fr om S corporations be subject to Social Security, Medicare, and Net Investment Income Tax, potentially increasing the tax burden on farm owners who currently benefit from tax exemptions on distributed corporate profits.
• Increased NIIT: The Net Investment Income Tax could increase by about one-third for individuals earning over $400,000, jumping from 3.8% to 5%.
• Raised Individual Income Tax Rates: The top marginal tax rate could rise from 37% to 39.6% for incomes over $400,000.
• Corporate Tax Rates: For C corporations, the flat tax rate might increase from 21% to 28%.

Capital Gains Taxes:

• Increased Rates for High-Income Earners: Qualified dividends and long-term capital gains could be taxed at rates up to 44.6% for high-income taxpayers, nearly doubling the current maximum rate of 23.8%.
• Limitation on Like-Kind Exchanges: The deferral of capital gains on like-kind exchanges could be capped at $500,000 per year.

Estate Taxes:

• Taxation of Gifted and Inherited Property: The new proposals treat transfers of appreciated property by gift or death as taxable events, potentially imposing capital gains taxes at the time of transfer.
• Estate and Gift Tax Adjustments: Proposed changes include beneficial adjustments such as increasing the maximum discount for special-use valuations on farm property kept within the family, although enforcement liens could extend beyond ten years.
• Generation-Skipping Transfers: A new rule might lim it asset transfer without estate tax to two generations, directly affecting long-term farm estate planning.

Other Potential Impacts:

• Fossil Fuel Investments: The proposal seeks to eliminate specific credits and deductions that support fossil fuel production, aligning with broader environmental goals.
• Extended Tax Breaks: Several temporary tax benefits might become permanent, including the child tax credit, earned income tax credit, and health insurance premium assistance.

These proposals reflect the administration's broader economic and social policy agenda and aim to address inequalities in the tax system while promoting a cleaner energy economy. However, it's important to note that these changes are only proposals and would require the approval of both houses of Congress to become law, which may be challenging given the current political landscape.