Changes for farms & farmland under the One Big Beautiful Bill Act

At a National Agricultural Law Center presentation, Grant Ballard and Kristine Tidgren provided an update on tax implications for farms related to the One Big Beautiful Bill Act (OBBBA).

Ballard is a partner with Ark Ag Law, PLLC and Tidgren is with Iowa State University serving as an adjunct associate professor in the Agricultural Education & Studies Department and as the director for the Center for Agricultural Law and Taxation.

Payment Eligibility

The Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs, administered by USDA-FSA, offer financial assistance to ag producers.

The OBBBA makes changes to payment limitations rules – the maximum amount of farm program payments that can be received by an individual or entity.

Farms organized as partnerships are treated as a group of individuals, meaning each partner can receive payment. Before the OBBBA, LLCs and S-corporations were treated as a single entity and could receive only one payment. This is no longer the case; multiple payment limits are allowed.

Ballard said the change was “framed as one of equity – why are we treating these partnerships differently when in fact the businesses operate the same way?”

With LLCs, S-corps and limited partnerships now treated as pass-through entities by USDA, members and shareholders will each need to verify that they are “actively engaged in farming,” as defined by USDA, to qualify for multiple payments. This is a level of scrutiny that has not previously been applied to these entities since they were always limited to one single payment.

Depending on how “actively engaged in farming” is interpreted by USDA, the change could have a negative financial impact on some farm businesses.

For example, using illustrative figures, a father and son each own 50% of an LLC. The LLC farms 3,500 acres of row crops. The father lives on the farm and runs the day-to-day operations. The son lives out of state and works a full-time job elsewhere. It is found that he contributes no significant labor or management to the farm and is therefore not actively engaged in farming.

Before the OBBBA, the LLC was treated as a single entity. The father’s active involvement was enough to qualify the whole entity as actively engaged in farming; the son was not separately tested. The operation farms sufficient acreage to draw $200,000 worth of PLC payments, but the entity’s single payment limit caps it at $155,000.

Under the OBBBA, the LLC is treated as a pass-through entity. Instead of testing the LLC as a whole, USDA tests each owner individually for active engagement and attributes the farm’s payment to each owner by ownership share. The operation farms sufficient acreage to draw $200,000 worth of PLC payments, but this time the payment is split by ownership: $100,000 each attributed to the father and the son.

The father is actively engaged, so his $100,000 share is fully payable. The son is not actively engaged, so he does not qualify for a payment limit at all – his $100,000 share is disqualified, and it can’t be claimed by the father. The LLC collects only $100,000, $55,000 less than it did the year before, even though the farm’s earnings and the father’s work are unchanged.

On the other hand, the payment eligibility change may benefit farm families. Assume a scenario where four members of a family are actively farming. They operate as a general partnership to ensure eligibility for multiple payments. In their state, however, each partner is personally liable for the actions of the partnership. Under the OBBBA, these four people can now establish an LLC for their operation and still be eligible for up to four payment limitations, each collecting up to $155,000 for a potential $620,000 total. The LLC will also provide liability protection for the owners.

Adjusted Gross Income

Prior to the passing of the OBBBA, farms that exceeded $900,000 of average adjusted gross income (AGI) weren’t eligible for certain FSA and NRCS programs.

Producers are now exempt from the AGI cap for conservation and disaster programs if at least 75% of their gross income is from farming or silviculture. The exception applies to certain disaster and conservation programs, including livestock programs and the Conservation Reserve Program. The change does not apply to ARC or PLC.

The law also broadened the definition of farming income to be more reflective of modern agricultural business practices, including agritourism, direct-to-consumer sales and certain equipment sales. They will no longer be penalized under USDA’s requirements for average AGI.

Another major change involves the longstanding $900,000 AGI limitation.

Beginning with the 2026 program year, producers who derive at least 75% of their average gross income from farming or silviculture activities may qualify for an exemption from the AGI cap for several disaster and conservation programs. These include the Livestock Forage Program (LFP), Livestock Indemnity Program (LIP), Emergency Assistance for Livestock, Honeybees & Farm-Raised Fish Program (ELAP), Tree Assistance Program (TAP), Noninsured Crop Disaster Assistance Program (NAP) and numerous USDA conservation programs.

For producers with substantial ag income but AGI levels above the traditional threshold, the change represents a significant expansion of eligibility.

Taxes on Sales of Farmland

The OBBBA also contains a new provision related to the sale of farmland: sellers can pay their taxes in four equal installments instead of one lump payment.

Tidgren said, “This is a deferral of the ability to pay tax due on certain sales of farmland. It is not an installment sale. You’re not deferring your ability to calculate the tax. You’re just deferring your ability to pay the tax.”

To take advantage of this provision, the property must be located in the U.S. and for the prior 10 years, the property has to have been used by the taxpayer either as a farm or for farming purposes or leased by the taxpayer to a qualified farmer for farming purposes.

Additionally, the land must be sold to a qualified farmer. The property must be subject to a covenant or other legally enforceable restriction which prohibits the use of such property other than as a farm for farming purposes for 10 years after the date of the qualified sale or exchange.

Tidgren laid out a hypothetical scenario where a landowner has 450 acres of farmland. She’s been renting this ground to a farmer for the past 12 years and now plans to sell it to the renter who is a qualified farmer. The base value of the land is $3 million and the sales price is $5 million.

The landowner would recognize $2 million in capital gain from the sale. Assuming a highest capital gain tax rate of 20%, and because the landowner has been renting this farmland for the past 12 years, she also is required to pay the net investment income tax. Tidgren estimated the total tax liability to be $476,000.

With the provision in the OBBBA, the seller can pay the $476,000 tax bill in four annual installments of roughly $119,000 each, assuming she meets all the provision’s criteria. By deferring the payments, she can leave the balance of the money collecting interest.

For example, if she earns 4.5% interest on the deferred balance, Tidgren estimates she would save about $41,000 by being able to pay the tax over four years. While $41,000 on a $476,000 bill is meaningful savings, Tidgren doubts it is enough to convince someone who wasn’t already planning to sell.

She said, “The incentive is perhaps not as great as what some would hope. Some would hope for maybe an elimination of some capital gains, some elimination of the tax required. That is not what this provision does at all. What it does is just defer the payment.”

by Sonja Heyck-Merlin