U.S. Rep. Steve Womack (R-AR) joined 87 other congressmen in urging President Joe Biden against damaging the livelihood of America’s farmers and other small investors by repealing or changing like-kind exchanges.
“Your plan to cap like-kind exchanges is yet another tax policy that will harm America’s farmers, small businesses and subsequently the economy as a whole,” Rep. Womack and his colleagues wrote in an Aug. 3 letter sent to the president.
A like-kind exchange, according to Investopedia, is a tax-deferred transaction that allows for the disposal of an asset and the acquisition of another similar asset without generating a capital gains tax liability from the sale of the first asset.
“Like-kind exchanges allow farmers and other small business owners to improve their operations and invest in better income-producing properties by deferring taxes on unrealized gains,” wrote Rep. Womack and his colleagues. “Four out of five individuals who utilize these tax deferments are qualified as small investors by the IRS. Therefore, we worry that any cap on the value of the property qualifying for like-kind exchanges would disproportionately disadvantage small investors.”
The proposal to limit like-kind exchanges — which is included in the Biden administration’s fiscal year 2022 budget, as well as in the American Families Plan — would result in a higher tax burden for landowners, including these small investors, who rely on the policy to drive economic growth in rural communities, according to the lawmakers.
“For the agricultural community, a cap on like-kind exchanges would limit farmers’ ability to improve their operations through combining acreage, purchasing more productive land, and mitigating environmental impacts,” wrote Rep. Womack and the members. “Further, capping like-kind exchanges could make it more difficult to restructure businesses so that young or beginning farmers can join operations.”
The members also wrote that limiting like-kind exchanges would have a negative impact on the nation’s agricultural sector and the national economy as a whole.
“It is critical that farmers and small businesses have the freedom to improve their operations in whatever way they see fit,” wrote Rep. Womack and the members. “This proposed change to the tax code would limit the economic mobility and viability of businesses across the nation. Now is not the time to stunt growth, but to encourage it.”
The letter is supported by the American Farm Bureau Federation and the Real Estate Roundtable, which includes 19 national real estate associations.