Family-owned and operated businesses face several challenges when transitioning to the next generation of ownership, including navigating the tax code. As recent jobs reports indicate, the economy remains on delicate footing, and at a time when many families and private forestry businesses are still struggling with disaster recovery and flat stumpage prices, several proposals put forth this Congress have the potential to make operating and passing on family forestland or forestry-related business even more difficult.
FLA has been working through the Family Business Coalition and 1031 Like-Kind Exchange Coalition to apply maximum pressure on Congress regarding key tax proposals that would affect the ownership and management of forestland or forestry-related businesses. We have participated in over 100 calls and Zoom meetings with Congressional offices on tax issues since January. Thanks to maximum pressure efforts from our partner coalitions and the forestry sector we were able to keep harmful tax provisions off the table for the Build Back Better bill, which passed the House of Representatives primarily along party lines on November 19, 2021. While FLA was pleased that the House passed Build Back Better bill did not include some of the tax increases that President Biden and progressives originally called for to be used as pay-fors, its fate and provisions in the Senate remain uncertain. Items of interest to FLA members include:
- Capital Gains. In the White House released BBB package, Pres. Biden proposed raising the top capital gains tax from 20% to 39.6% for those making more than $1 million a year. Biden’s proposal to raise capital gains was kept out of the negotiating reconciliation package in Congress.
- Stepped-up basis. Biden’s proposal to end a tax break on inheritances known as “stepped-up in basis,” which wipes out the capital gains tax on assets, is not included in the bill.
- 1031 like-kind exchanges. A 1031 exchange is a swap of one investment property for another “like-kind” property that allows capital gains taxes to be deferred. Early conversations in Congress proposed to eliminate this program, but as of writing, there is no change to 1031 exchanges in the package.
- Estate taxes. FLA joined the Family Business Coalition in sending a letter urging Congress to keep all estate tax-related changes off the table as BBB negotiations continue. So far changes to estate taxes are not included in the BBB, but we are ever mindful of last-minute changes are possible.
Several climate change provisions were included in the House-passed version of BBB that will benefit private working forests and wood products, positioning both as a natural climate change solution.
- $200 million for USDA outreach, training, capacity building, and other technical assistance for underserved farmers, ranchers, or forest landowners, including in high poverty areas.
- $2 billion for grants to support forest restoration and resilience projects on non-federal forest lands.
- $1.3 billion in grant funding through the Landscape Scale Restoration Program to:
- help small forest landowners carry out climate mitigation or forest resilience practices and participate in emerging markets
- provide payments to private forest landowners to adopt forestry practices that increase carbon sequestration and storage
- $200 million for the Forest Inventory and Analysis Program to modernize data collection and improve forest carbon monitoring and measurements
- $775 million for wood innovation grants to support traditional wood utilization projects, expands wood energy markets, and promotes using wood as a construction material in commercial buildings.