In July 2025, the One Big Beautiful Bill Act (OBBBA) made many changes to the tax code, including some especially relevant to farm estate and succession planning. This post provides a quick recap of the current federal estate and gift tax exemptions and highlights a new provision related to the sale of farmland that could be useful to some farmers developing their farm transition plans.
Lifetime Estate and Gift Tax Exemption (Basic Exclusion)
2025: $13.99 million
2026: $15 million
2027 and beyond: $15 million, indexed for inflation
The lifetime estate and gift tax exemption is the amount that a person can give away during their life or at death without paying federal estate or gift tax. For married couples, each spouse has their own exemption, meaning their combined exemption is double the amount listed above. Electing portability allows a surviving spouse to use their deceased spouse’s unused exemption. The tax rate on transfers that exceed the lifetime exemption is 40%.
What changed?
The OBBBA did not change the 2025 lifetime exemption amount of $13.99 million. However, it did change the exemption for 2026 and subsequent years. Before OBBBA, the lifetime exemption was scheduled to “sunset” or revert to roughly $7 million in 2026. The sunset was eliminated. The higher exemption amounts are permanent and will not change unless Congress enacts new legislation. The estate and gift tax rate remains unchanged at 40%. Additionally, portability, which allows a surviving spouse to use their deceased spouse’s unused exemption, remains unchanged.
Annual Gift Tax Exclusion
2025: $19,000
2026: $19,000
The annual gift tax exclusion allows a person to give up to $19,000 per recipient each year without reducing their lifetime exemption and without filing a gift tax return. Although the exclusion is not large, it can be an effective way to transfer assets gradually, especially considering that a person can gift up to $19,000 in value to as many individuals as they wish. The annual exclusion can be used to gift cash, investments, and other assets, including equipment and interests in farming entities.
What changed?
The OBBBA did not change the annual gift tax exclusion. The provision remains permanent and is adjusted for inflation in $1,000 increments, meaning it is adjusted only in some years.
Treatment of Capital Gains from the Sale of Certain Farmland
Capital gains tax rates remain unchanged and are capped at 20%.[1] However, OBBBA added a new provision that allows sellers of certain farmland to pay the resulting capital gains tax over four years rather than paying it all at once. The provision does not alter the tax calculation or change the amount of tax resulting from the sale; however, it does provide flexibility to manage cash flow by spreading out payments to the IRS if certain conditions are met. To be eligible -
- The land must be sold to a farmer who is actively engaged in farming.
- The land sold must be subject to a legally enforceable restriction that prohibits it from being used for any purpose other than farming for at least 10 years after the sale.
- For substantially all of the 10 years leading up to the sale, the land must have been used by the taxpayer as a farm for farming purposes or by a lessee who used the land as a farm for farming purposes. The definitions of "farm" and "farming purposes" are the same definitions used for Special Use Valuation under Section 2032A of the Internal Revenue Code.
An election to pay the tax installments must be made on the tax return for the year the sale occurred. The first payment (1/4 of the tax from the sale) is due with that return, with the remaining payments due annually over the next three years. If the taxpayer fails to make any of the remaining installment payments, the outstanding tax owed from the sale becomes due. If the seller dies, any remaining tax owed from the sale is due with the tax return for the year in which the seller dies.
Additional Information
For more information on farm succession planning, please visit the Beginning Farmer Center website Business, Estate and Succession Planning. You can find additional information about the tax provisions included in OBBBA in this blog post from the Center for Agricultural Law and Taxation.
[1] The 3.8% net investment income tax may also apply to some sales.