The sale of farmland is subject to capital gains taxes, making farmers and ranchers reluctant to sell off land assets when they retire. The federal capital gains rate of 20 percent, based on a property’s appreciation in value since purchase, can be significant for land that has been held for a long time or has appreciated significantly in value. Land that transfers at death, however, is exempt from federal estate tax provided it is within current exclusion levels, thus penalizing farmers and ranchers who want, or need, to sell land to finance retirement or to help a next generation farmer get started while incentivizing them to hold land assets until death.
Excluding the proceeds from the sale of an agricultural land from capital gains tax when selling to qualified young, beginning, and BIPOC farmers would spur landowners to seek out these farmers. This incentive would increase land access for a new generation of farmers, while supporting farmers who are transitioning out of farming or planning for retirement.
Federal vs. State
Both federal and state legislators can make this change, but the most impact will come from federal capital gains tax reform since the tax rate is much higher than at the state level.