Right. So they don't get the step up in basis without actually paying the tax. Still, having to pay capital gains is likely only 15%. It sucks (and I don't agree with it for a variety of reasons) but I don't think it will force many people to sell that would otherwise hold onto the land.
Let’s say you inherit 600 acres of prime Iowa farmland. Your dad bought it 40 years ago at $900 an acre. It’s worth about $9k an acre now. You want to farm and make a living doing so, so you have no plans to sell any of it. In fact you really can’t sell any of it because 600 acres is pretty marginal for making a living. Under the rules as they are now, you get a step up in basis and no taxes of any kind if you don’t sell. Under what might happen and is being talked about, you get no step up in basis and owe capital gains tax upon transfer. Your dad got the property for $540k. It is now worth $5.4 million. You owe taxes on $4.86 million. At 15% that is $729,000. At the talked about 39% the Biden administration is possibly proposing $1.53 million. Either sum would force most people to sell at least a portion of the farm which would make it non-viable as a way to make a living. May as well sell it all then.
