New Estate Tax Rules Impact Farm Transfers
Authored by: Troy Hilyard — Partner, CPA | Date Published: June 15, 2026
If you’ve spent years worrying that your children might have to sell part of the farm just to cover an estate tax bill, this is worth your attention. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has reshaped the federal estate taxes for farm families nationwide.
Every farm owner and agricultural family should recognize that this law doesn’t eliminate the need for estate planning. Instead, it shifts the focus of your planning. Failing to adjust your strategy could unintentionally cost your heirs hundreds of thousands of dollars.
Let’s discuss what’s changed, what it means for your operation, and where you should focus your planning now.
What Did the One Big Beautiful Bill Act Change for Farm Estate Taxes?
Before the OBBBA, the federal estate tax exemption was set to drop at the end of 2025. Previously, the exemption was around $13 million per individual. That figure was scheduled to “sunset” back to roughly $7 million per person after December 2025. For married couples farming together, that meant a drop of roughly $12 million in combined protection. On a farm where land values have soared over the past decade, that gap could have triggered a significant estate tax bill.
The OBBBA eliminated this sunset and established a permanent $15 million exemption per individual starting in 2026.
Now, if you and your spouse jointly own a farm valued up to $30 million, your heirs could potentially owe no federal estate tax. This level of protection was unavailable to most farm families just a year ago.
Does My Farm Still Owe Federal Estate Tax Under the New Law?
The USDA reports that the average farm operation in the United States has a total asset value well below $30 million. Large, multi-generational operations with thousands of acres may still approach or exceed this threshold, and those families should continue working with an estate planning attorney and a CPA to carefully structure their affairs.
But for the majority of farm families, particularly those with operations in the $5 million to $20 million range, the federal estate tax is no longer the primary threat it once was.
If Estate Tax Isn't the Concern Anymore, What Should Farm Families Be Planning For?
The main planning focus now is on income tax. Specifically, preserving the step-up in basis at death and understanding long-term tax consequences when transferring your farm.
Understanding Step-Up in Basis
Suppose your family bought a farm for $200,000 decades ago, and it’s now worth $3 million. Selling it during your lifetime would mean paying capital gains tax on $2.8 million in appreciation, potentially over $500,000, depending on your tax bracket.
But there’s powerful planning tool that the new estate tax environment makes even more important. When you pass away and leave that farm to your heirs, the basis of that property is “stepped up” to its fair market value at the date of your death. In our example, your children would inherit the farm with a $3 million basis. Meaning if they sold it the next day, they would owe no capital gains tax.
However, when you pass the farm to your heirs, its basis is “stepped up” to its current market value. In this example, your children inherit the farm with a $3 million basis. Meaning if they sold it the next day, they would owe no capital gains tax.
Why Gifting Strategies Need a Second Look
Previously, farm families often gifted land or farm assets to their children to shrink their taxable estate. A sensible approach when estate tax exemptions were lower.
Now, gifting assets during your lifetime can hurt your heirs, since they don’t receive a step-up in basis. If you gift land, your children inherit your original cost basis and may owe capital gains tax on all appreciation when they sell. It’s often better to hold appreciated assets until death so heirs receive the step-up and can sell without capital gains tax.
Not all gifting strategies are off the table. Some asset transfers still make sense. Each transfer should be evaluated for both estate and income tax impact, with income tax now the primary consideration.
How Should Farm Families Approach Income Tax Planning After the New Law?
The OBBBA didn’t just change the estate tax. It also introduced key changes to annual income taxes for farms.
Bonus Depreciation
One of the most impactful changes in the OBBBA for day-to-day farm operations is the permanent restoration of 100% bonus depreciation for qualifying property placed in service after January 19, 2025. This means you can write off the entire purchase price of new qualifying farm equipment in the year it’s placed in service.
Section 179
Section 179’s deduction cap is now $2.5 million for 2026, double the previous limit. Giving farmers more flexibility to accelerate deductions on qualifying assets. Taking maximum depreciation every year isn’t always the best option. A multi-year tax plan that coordinates depreciation deductions with expected income levels can save significantly more in taxes over the long run.
Income Averaging and Other Farm-Specific Tools
Farm income is volatile, so the tax code offers tools to help manage fluctuations:
- Farm income averaging lets you spread a high-income year over the prior three years, lowering your overall tax rate.
- Deferred payment contracts allow cash-basis farmers to sell crops in one year and receive payment in the next, shifting income between years.
- Prepaying expenses before year-end can reduce current-year income if IRS rules are met.
- Retirement plan contributions (SEP-IRAs, defined benefit plans) can reduce taxable income and build long-term wealth.
- Roth IRA conversions in low-income years can move money into tax-free accounts at lower rates.
What Do the Tax Changes Mean for My Succession Plan?
If your succession plan was built primarily around minimizing estate taxes, it’s time to revisit that plan. This doesn’t mean the past structures are wrong. Some of them serve important non-tax purposes and protect your assets. But the tax math behind those strategies has changed, and what made sense before may not make sense today.
Questions to Ask Your CPA and Attorney
- Does my current estate plan still make sense in a $15M exemption environment?
- Am I holding the right assets in the right way to maximize step-up in basis at death?
- How should I think about transitioning the farm to my children who are actively farming?
- What is my overall income tax projection for the next five years, and how do my depreciation choices affect that?
What Steps Should Farm Families Take Right Now?
These changes represent a real shift in the estate planning landscape for farm families. One that brings relief but also requires a new way of thinking. With the federal estate tax threat reduced for most operations, the priority becomes income tax strategy, preserving step-up in basis, and making sure your succession plan reflects today’s rules.
Ready to make sure your farm is positioned for what’s ahead? The agribusiness team at MBE CPAs is here to help you navigate these changes with confidence. Whether you need a full estate plan review, income tax projection, or guidance on succession strategies, we’d love to be your trusted partner. Contact MBE CPAs to schedule a consultation. Prefer to talk directly? Call us at (608) 356-7733.