Benjamin Franklin once famously said, “In this world, nothing is certain except death and taxes.” This rings especially true for Illinois growers. Although they must consider planting dates and input costs, they must also navigate a complex and rigorous tax system for their farms, businesses and families. The business aspect of running a farm operation can be as stressful and complicated as any other facet of farming. Just as the weather and markets are always changing, so too are our state and federal tax codes constantly in flux.

One critical issue that all farmers must prepare for is estate taxes and estate planning. Illinois is one of the few states that has a state estate tax, so farm families must be prepared to deal with both federal and state estate taxes. Estate taxes are paid from the assets of an estate before the remaining assets can be distributed to the heirs. The executor or trustee of the estate is responsible for filing the required tax returns. In the 2023 tax year, the federal estate tax exemption applies to estates valued over $12.92 million, increasing to $13.61 million in the 2024 tax year. Additionally, the federal estate tax is portable between spouses, allowing them to combine their estates to double the exclusion.

However, Illinois farmers face a different issue: The state’s estate tax threshold is just $4 million, and it is not portable between spouses. Given the high value of farmland in Illinois, many family farms quickly reach this threshold. When other assets such as equipment, real estate and retirement funds are included, many Illinois growers far exceed this limit. Unlike the federal estate tax, which taxes only the amount exceeding the threshold, Illinois’ estate tax applies to the first dollar of the estate’s value once it surpasses the $4 million mark.

Fortunately, in recent years, several bills have been filed in the Illinois State House and Senate to reform the state’s estate tax. These proposed changes include extending the exemption amount to $10 million or more, excluding agricultural land entirely and adding portability to the tax code. Yet any reform inevitably reduces state revenue, and in times of tight budgets, these efforts have been stymied.

On the federal level, one crucial tax issue for Illinois growers is the stepped-up basis provision. This provision is vital for growers and helps keep farms within families. When assets are included in a taxable estate, their value is “stepped up” to the market value at the time of the owner’s death. For example, if a farm was bought for $100,000 and is worth $1 million at the time of the owner’s death, the new basis is $1 million, effectively erasing $900,000 in capital gains. This provision applies to equipment as well. Eliminating or altering the stepped-up basis would hurt farm families who might need to sell portions of inherited estates, forcing them to pay high capital gains taxes.

Over the years, multiple proposals have addressed stepped-up basis. One proposal aims to eliminate it entirely, which would require farming heirs to pay large capital gains taxes if they sell inherited estate assets. Another proposal suggests taxing the gain in value at the time of death, effectively imposing a second estate tax on farmers.

Another important tax provision growers should understand is the 199A, also known as the qualified business income (QBI) deduction. This deduction allows non-corporate taxpayers to deduct up to 20 percent of their qualified business income, plus up to 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. The 199A deduction can also affect the net operating loss (NOL) of a QBI. When a pass-through business owner realizes an NOL in a QBI, the deduction is $0 for that tax year. The NOL may be carried forward to the next year and treated as a negative QBI that is then subtracted from any positive QBI for the year.

These issues are ever evolving and fluid. At the state level, many proposals aim to initiate conversations on estate tax reform. Many legislators believe that the $4 million threshold is too low, affecting not just farmers but many residents and business owners throughout the state. On the federal level, the Tax Cuts and Jobs Act, signed into law by former President Donald Trump in 2017, encompassed steppedup basis, 199A and many other important provisions. It is set to expire in 2025. This provides the Illinois Soybean Growers a great opportunity to begin conversations with our congressional delegation and state legislators. We must remain actively engaged in advocating for tax relief for family farms and businesses. In times where margins are slim, we cannot afford to add undue burdens on our growers.