The clock is ticking for American farming families as a major tax change looms on the horizon. Starting January 1, 2026, the federal estate tax exemption will drop by half, from $13.61 million per person to just $7.61 million. For married couples, this means their combined exemption falls from $27.22 million to $14 million.
Time is running out as federal estate tax exemptions face a devastating 50% cut in just over a year.
This shift spells trouble for family farms across America. Currently, only 0.3% of all farms owe estate taxes. After 2026, that number jumps to 1.0%. The impact hits hardest on large farms with annual income between $1 million and $5 million, where taxable estates will increase from 2.8% to 7.3%.
The challenge stems from farming’s unique financial structure. Farmers are typically asset-rich but cash-poor. An 800-acre Iowa corn farm might generate $600,000 in revenue while facing $150,000 in losses due to rising costs. The land itself holds enormous value, but farmers rarely have enough liquid cash sitting around to pay hefty tax bills. Over 80% of farm assets are tied up in real estate, machinery, crops, livestock, and business interests.
Making matters worse, these families could lose what’s called “step-up in basis.” This tax benefit currently resets asset values to market price when inherited, helping heirs avoid capital gains taxes. Without it, selling inherited farmland becomes doubly expensive.
Many farm families face an impossible choice: sell the land to pay taxes or struggle under crushing debt. In Texas, where family-owned farms make up over 90% of operations, state leaders passed Proposition 8 to ban state estate taxes specifically to prevent forced farm sales.
Smart planning can help, but time is running short. Financial advisors recommend large gifts before December 31, 2025, especially for estates worth more than $20 million. Some farmers can defer estate taxes if they keep land in production for ten years, though this comes with interest payments. Like forex traders who use leverage to control large positions with small deposits, farmers often operate with significant debt relative to their liquid assets.
The proposed OBBBA legislation offers hope by making a $15 million exemption permanent, but Congress must act. Without intervention, farm households face an estimated $647 million increase in estate tax liability. With the federal debt reaching $33.2 trillion in 2023, any legislative solution will need to balance protecting family farms with addressing broader fiscal concerns.
For many families who’ve worked the same land for generations, the American dream of passing down the family farm hangs in the balance.
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