Running a farm in the twenty-first century is no easy task. The financial burden is frequently too heavy for many farmers, sometimes even leading to bankruptcy. Fortunately, a newly enacted bipartisan law has recently been signed into law to provide tax relief to bankrupt family farms.
The bill was introduced by Senators Charles Grassley (R-Iowa) and Al Franken (D-Minn.) in October and cleared the Senate easily before being signed into law by President Trump. The new law is a step in the right direction for financially troubled farmers.
What is the new law?
The Family Farmer Bankruptcy Clarification Act of 2017 is designed to protect family farmers who are going through bankruptcy from excessive capital gains tax on the sale of their land.
If at first you don’t succeed…
The bill was not approved the first time around. Or the second, or the third. Grassley and Franken had introduced the bill to the Senate in 2012, 2013 and 2015, only to see it fail. This time, the legislators were able to rally enough bipartisan support to pass it in the Senate and be signed into official law.
What it does
Essentially, the law changes how farmers are affected by capital gains taxes. Capital gains taxes, or the taxes incurred by the sale of a capital asset, will now be treated as general unsecured claims that can be discharged at the end of a payment plan. Before, they were priority claims that had to be satisfied in full before creditors who were unsecured could receive payments. The taxes could often be so burdensome that many family farms were forced to shut down.
How it helps farmers
Under the new law, farmers are able to sell pieces of their land without being dragged down by hefty capital gains bills. This is particularly helpful for family farms that have declared Chapter 12 bankruptcy, as they can put more of the profit from sales toward salvaging their farms and paying their creditors, rather than losing it to capital gains payments.