A $1.5M barn upgrade could cost $400k more in taxes after 2025. Dairy farmers: Navigate the TCJA cliff now or risk your legacy.
EXECUTIVE SUMMARY: The 2025 expiration of Trump-era TCJA tax cuts threatens dairy farmers with higher estate taxes, reduced equipment deductions, and income bracket shifts. Key changes include the estate tax exemption dropping to $7M, bonus depreciation falling to 40%, and the 20% QBI deduction loss. Legislative uncertainty looms, with debates over whether TCJA disproportionately benefits large farms. Proactive strategies like accelerating equipment purchases, restructuring entities, and leveraging 2025’s higher estate exemption are critical. Farmers must now shield operations from a potential $4.5 trillion tax hike over the next decade.
KEY TAKEAWAYS:
- Estate Tax Crisis: The exemption drops to ~$7M in 2026, and families who exceed this threshold risk paying 40% taxes on land and assets.
- Depreciation Deadline: Bonus depreciation will fall to 40% in 2025; equipment upgrades will now save thousands compared to post-2026 costs.
- Entity Restructuring: Post-TCJA, pass-through entities may lose advantages. If rates drop to 15%, review C-corp options.
- Slight Farm Disadvantage: Critics argue that TCJA’s QBI deduction and depreciation rules favor large corporate operations.
- Farmer Quote: “We’re scrambling to buy equipment before deductions vanish, but big farms outpace us.” – Iowa dairyman.
Imagine a $1.5 million barn upgrade costing $400,000 more in taxes after 2025. This stark reality awaits dairy farmers if the TCJA’s bonus depreciation disappears as scheduled. While the law’s temporary provisions provided relief since 2018, its expiration creates both challenges and opportunities. This revised analysis sharpens focus on actionable strategies, balanced policy debates, and farmer-centric insights.
1. The Estate Tax Exemption Sunset: A Generational Wealth Transfer Crisis
The TCJA’s doubling of the federal estate tax exemption to $13.99 million per individual (adjusted for inflation) has protected family farms since 2018. However, this protection expires December 31, 2025, and will revert to approximately $7 million per person in 2026.
Why This Matters for Dairy Farms:
- Land-rich, cash-poor operations face disproportionate risk. A 500-acre dairy valued at $8 million would owe 40% taxes on $1.02 million after the exemption reduction.
- Spousal portability remains critical. Through proper planning, surviving spouses can retain a deceased partner’s exemption, preserving family ownership.
- Annual gifting ($19,000 per recipient in 2025) becomes essential for transferring wealth without triggering estate taxes.
Proactive Strategies:
- Use 2025’s higher exemption: Shift assets to irrevocable trusts before the exemption drops, locking in tax benefits.
- Gift appreciated assets: Transfer land or equipment with unrealized gains to heirs, avoiding capital gains taxes at transfer.
- Spousal Lifetime Access Trusts (SLATs) Allow spouses to benefit from assets while removing them from taxable estates.
2. Federal Estate Tax Rates: Verified 2025 Brackets
The federal estate tax applies only to estates exceeding $13.99 million in 2025. Below is the verified tax bracket structure from SmartAsset and Investopedia:
| Taxable Amount Over Exemption | Federal Estate Tax Rate | Base Tax Owed |
| $1 – $10,000 | 18% | $0 |
| $10,001 – $20,000 | 20% | $1,800 |
| $20,001 – $40,000 | 22% | $3,800 |
| $40,001 – $60,000 | 24% | $8,200 |
| $60,001 – $80,000 | 26% | $13,000 |
| $80,001 – $100,000 | 28% | $18,200 |
| $100,001 – $150,000 | 30% | $23,800 |
| $150,001 – $250,000 | 32% | $38,800 |
| $250,001 – $500,000 | 34% | $70,800 |
| $500,001 – $750,000 | 37% | $155,800 |
| $750,001 – $1,000,000 | 39% | $248,300 |
| Over $1,000,000 | 40% | $345,800 |
Example:
A dairy farm estate valued at .43 million (exceeding the 2025 exemption by 0,000) would pay:
- Base tax: $70,800 (for $250k–$500k bracket)
- Marginal tax: 34% on $190,000 ($64,600)
- Total tax: $135,400.
3. Bonus Depreciation Phase-Out: Strategic Equipment Investments
While the TCJA’s bonus depreciation provisions (100% through 2022) have gradually declined, 2025 offers 40% depreciation for qualifying equipment purchases. This creates a critical window for dairy operations:
| Equipment Purchase Scenario | 2025 Depreciation | 2026 Depreciation |
| $500k milking system | $200k immediate deduction | $100k deduction (20% rate) |
| $1.5M barn upgrade | $600k deduction ($1.25M Section 179 + $300k bonus) | Reduced deductions as Section 179 phases out |
Key Considerations:
- Equipment trades: The TCJA eliminated tax-free trade treatment. A $200k tractor trade-in could trigger capital gains taxes on the difference between the trade-in value and the purchased price.
- Used equipment eligibility: Some pre-owned assets may qualify for depreciation under IRS guidelines. Consult tax professionals for eligibility.
4. Legislative Uncertainty: What Farmers Need to Watch
While the TCJA’s expiration creates clear challenges, political developments could alter this trajectory. Key variables include:
| Factor | Current Status (2025) | Potential Impact if Extended |
| Bonus Depreciation | 40% (phasing to 0% by 2027) | Could restore 100% if extended |
| Estate Tax Repeal | $13.99M exemption | Permanent repeal proposed |
| Corporate Tax Rate | 21% | Reduction to 15% for domestic production |
Proactive Planning:
- Equipment purchase timing: 2025 offers better depreciation than 2026 but worse than 2024.
- Generational transfers: Use 2025’s higher exemption to transfer assets through trusts or GRATs.
- Entity structure review: Compare pass-through vs. corporate tax benefits under potential law changes.
5. Challenging Assumptions: Myths vs. Reality
Myth: “All farmers benefit equally from TCJA provisions.”
Reality: Smaller operations often lack QBI income to maximize Section 199A benefits, while large farms face complex entity decisions.
Myth: “Estate planning only matters for wealthy farmers.”
Reality: Even modest farms with appreciated land values risk exceeding post-2025 exemptions. A $6 million dairy operation would owe taxes on $1 million if the exemption drops to $5 million.
Myth: “Bonus depreciation is only for new equipment.”
Reality: Some used equipment qualifies under IRS guidelines. For example, a refurbished milking parlor might still be eligible for depreciation.
6. Controversy: TCJA’s Equity Debate
Critics argue the TCJA disproportionately benefits large operations, widening the gap between family farms and corporate agribusinesses. For example:
- Bonus depreciation: Corporate-owned farms with high cash flow maximize deductions, while smaller farms struggle to afford upgrades.
- QBI deduction: Limited to 20% of qualified income, this benefits high-revenue operations more than modest ones.
“‘We’re scrambling to buy equipment now before depreciation drops further,’ says Iowa dairyman Mark Thompson. ‘But smaller farms like mine can’t match the deductions big operations get.’”
Conclusion: Strategic Planning for 2025 and Beyond
While the TCJA cliff creates challenges, it also presents opportunities for forward-thinking farmers. Three critical actions emerge:
- Accelerate equipment purchases in 2025 to capture remaining bonus depreciation.
- Review estate plans to use 2025’s higher exemption through gifting or trusts.
- Explore entity restructuring to optimize tax positions post-2026.
The Bullvine will continue monitoring legislative developments and providing actionable insights. Proactive farmers who engage tax professionals now will position their operations to thrive regardless of future policy changes.
Read more:
- The Tax Man Cometh to the Farm: Three TCJA Provisions Set to Expire in 2025 and What Dairy Producers Need to Know
Explore how expiring TCJA provisions—bonus depreciation, estate tax exemptions, and Section 199A—will reshape dairy farm tax strategies. - New 25% Border Tax Hits Dairy Trade: What It Means For Your Farm.
Understand the impact of new tariffs on the U.S.-Canada dairy trade, including shifts in export markets and consumer costs. - Dairy Co-ops Face a $2B Tax Cliff in 2025. Will Congress Act Before Rural Economies Collapse?
Learn how Section 199A’s expiration threatens co-op dividends, rural jobs, and farm competitiveness—and why farmers are urging legislative action.
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