My husband is retired, so he has more opportunities to spend time in the repair shop waiting for tires to be patched or equipment to be repaired, all the while chatting with his peers. Those conversations result in questions for me when there has been a discussion about finances. The topics of inquiry are usually related to estate planning. The average age of farmers is 57.5 years, so it stands to reason it wouldn’t be about student loans, and he doesn’t need answers when the topic is commodities, livestock or equipment sales.
The most recent ask was the result of a statement concerning a tax liability of 38% if farm ground was sold. “That’s probably wrong” I said, and here is why:
- Only property owned for less than a year is subject to regular income tax rates.
- The 2019 tax rates on regular income is 10%, 12%, 22%, 24%, 32%, 35%, and 37%
- The owner would be able to subtract costs and would only pay taxes on the profit. Farm ground has actually gone down in price or stayed stable during the past year.
- Income taxes are graduated and rise as your income increases. All single taxpayers pay 10% on the first $9,700 of taxable income. The 37% income tax is calculated on income greater than $510,301.
If the farm ground was owned for more than a year then profits from sales would be subject to long term capital gains taxes.
- Long term capital gains taxes are 0%, 15%, and 20%.
- The tax rate would be determined by income. A single taxpayer with income of $39,375 or less pays 0%, 20% is the capital gains rate when a single taxpayer has income greater than $434,551.
If the farm ground had a house on it and the owner lived in it for two of the five years before the sale, then up to $250,000 of profit resulting from the home sale would be exempt from taxes.
There could be an extra tax as a result of the Affordable Care Act. A 3.8% investment tax is collected when a single taxpayer’s investment income exceeds $200,000.
With plenty of tax laws to consider and individual circumstances that vary, it wouldn’t be wise to suggest taxes on the sale of farm ground would be 38%.