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The National Cattlemen’s Beef Association (NCBA) recently released a report analyzing the results of a nationwide tax survey of American cattle producers, focusing on the impact of the 2017 Tax Cuts and Jobs Act (TCJA) provisions.
NCBA said the findings reveal deep concerns among family-owned cattle operations regarding the potential expiration of several important tax provisions by the end of 2025, which could lead to increased tax burdens, financial strain and potential loss of multigenerational businesses.
“Farms and ranches are unique small businesses, and they face a variety of challenges that our tax code must address,” said NCBA Executive Director of Government Affairs Kent Bacus.
“The survey data shows strong support for tax provisions that help cattle producers reduce their taxes and invest in essential assets for running a successful cattle operation,” Bacus continued. “To protect our farming and ranching heritage, we need Congress to step up and back tax provisions that help cattle producers save more of their hard-earned money and set up the next generation of cattle producers for success.”
Survey findings
The NCBA tax survey examined tax provisions impacting cattle producers, including estate tax, capital gains, and deductions, such as depreciation. Overall, the survey revealed ranchers are concerned about income and property taxes, with 25% stating they spend over $10,000 annually for tax preparation and compliance.
The report cites the stepped-up basis as one of the most significant tax tools, which 96% of respondents support maintaining as a tool for managing tax liability. Given the sharp rise in land values, two-thirds of cattle producers are concerned that eliminating or reducing this provision could significantly increase their tax burdens.
For many cattle producers, real estate is their most valuable asset, and selling farmland can result in significant capital gains taxes, especially for operations with limited cash flow. A Section 1031 Exchange is a critical tool for minimizing this tax burden, and according to the NCBA survey, 18% of respondents have utilized the 1031 Exchange.
Additionally, cattle producers widely utilize the Section 179 deduction, with 57% of survey respondents reporting its use within the last three years. The TCJA increased the Section 179 deduction limit to $1 million, with a total equipment purchase cap of $2.5 million. For the 2024 tax year, the Section 179 deduction limit has been adjusted to $1.22 million. Many producers noted that without this provision, they would have faced an additional tax burden exceeding $20,000.
NCBA has supported TCJA due to its enhancements of crucial tax provisions like bonus depreciation. According to NCBA’s tax survey, 44% of producers utilized bonus depreciation in the past three years, with 31% stating they avoided more than $20,000 in additional taxes. The TCJA’s changes enabled producers to recover costs more quickly, although the 100% deduction limit began phasing out after 2022 by 20% annually until 2027.
Section 199A, introduced by the TCJA, allows small businesses with pass-through income to deduct up to 20% of qualified business income from their taxable income. This deduction is significant for farm and ranch businesses, such as S-corporations and sole proprietorships that are not C-corporations.
With the provision set to expire at the end of 2025, 56% of NCBA survey respondents view it as crucial to their business, and the NCBA supports making it permanent to avoid a $2.2 billion increase in tax liabilities for farmers and ranchers.
Estate tax concerns
The estate tax remains one of the most pressing concerns for multigenerational cattle operations. According to the NCBA survey, over one-third of producers have been directly impacted by this tax, with some respondents forced to sell land or take out loans to meet tax obligations.
With estate tax limits set to expire in 2025, 61% of respondents worry that their operations will be affected if the threshold is reduced to $5 million per individual. Estate tax tools such as the 2032A Special Use Valuation, which measures real estate based on its agricultural use rather than development potential, have proven helpful, with 13% of respondents utilizing this provision to avoid tax penalties.
Succession planning is crucial for ensuring the continuity of multigenerational cattle operations. According to the NCBA survey, 65% of the respondents plan to pass their business down to a spouse or children, highlighting the strong desire to keep operations within the family. Regarding transitioning decision-making responsibilities, 56% have either stepped back from daily management or plan to do so within the next decade. In comparison, 29% have no immediate plans for transition.
The financial burden of succession planning is significant, with 25% of respondents spending over $10,000 annually on estate planning. Many producers seek professional advice to navigate this process, with 66% consulting attorneys, 59% working with accountants and 33% engaging financial advisers. Additionally, half of the survey respondents have purchased life insurance or similar tools to cover the costs associated with succession.
NCBA concluded the survey findings demonstrate that many producers could face severe financial hardship without these tools, threatening the future of multigenerational businesses. — Charles Wallace, WLJ contributing editor
