When a farmer dies in February, the seed and fertilizer are sitting in the shed, and everybody can see them. When he dies in June, that same seed and fertilizer are in the ground and most people never think about them again.

They should. A growing crop is an asset, it gets a step-up in basis, and on a decent sized operation it is frequently the largest income tax planning item in the entire estate.

Why the step-up applies

A growing crop is property the decedent owned at the date of death. It goes into the gross estate at fair market value, and under Section 1014 the heir takes that same fair market value as basis.

It is not income in respect of a decedent, because a growing crop is not income the farmer had earned or had a right to collect. The value used for estate purposes serves as the income tax basis of the unharvested crop.

The catch is who was farming it. To get the step-up, the decedent has to have been the farmer, or a crop share landlord who materially participated. A crop share landlord who was not materially participating does not get it. That share is IRD instead. For the passive landlord the crop is valued the same way, but the portion of the sale proceeds allocable to the period before death is IRD, and IRD gets no step-up. A cash rent landlord has no growing crop at all, just rent.

How you value it

Two accepted methods. Which one fits depends on how far along the crop was.

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If you got a letter from FSA saying you owe back part of your Emergency Relief Program (ERP) 2022 payment, hold off on writing the check. FSA released a notice in the August 14, 2026 Federal Register that lets a good number of these producers keep the money instead of repaying it.

Here is how we got here and what you need to do about it.

A Yes-or-No Question That Cost Real Money

ERP 2022 covered 2022 crop losses from drought, floods, freeze, excessive heat, wildfire, and the rest of the qualifying disasters. FSA ran it in two tracks. Track 1 was the streamlined version for producers who already had a crop insurance indemnity or NAP payment. Track 2 was the revenue-based approach, filed on Form FSA-524.

Item 16 on that Track 2 application asked one simple question: Were all of your eligible crops insured or covered by NAP?

• Answer “yes” and FSA used a 90% payment factor.

• Answer “no” and FSA used a 70% payment factor.

Twenty percentage points is not small change. On a $300,000 revenue loss, that spread is $60,000.

A lot of producers answered “yes” without thinking hard about the odds and ends. The corn and beans were insured. But there was also 40 acres of hay, or a patch of tomatoes, or some specialty crop with no insurance and no NAP coverage. The technically correct answer was “no.” FSA has been going back, recalculating those payments at 70%, and sending out overpayment notices.

Congress Stepped In

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The Chicago Fed released its August AgLetter last week, and the headline is that Midwest farmland values did not move in the second quarter. Unchanged from the first quarter. Unchanged from a year ago.

That is the wrong number to look at.

Adjusted for inflation, District farmland values fell 3.7% over the last year. That is the largest real decline since the third quarter of 2016. Your balance sheet did not change. What the land will buy did.

Run it on real ground

Take 160 acres of good Illinois ground worth $12,000 an acre. That is $1,920,000, and it was $1,920,000 a year ago too. Nothing to report to the banker.

Except the same $1,920,000 buys about $71,000 less than it did last August. The land held its number and lost its purchasing power. If your operation is counting on appreciation to cover the equipment line or fund the buyout of a sibling, a flat year is a year you fell behind.

By state, Illinois and Iowa were up from a year ago while Indiana and Wisconsin were down. Michigan did not draw enough survey responses to report.

Farmers are not the ones holding values up

This is the part of the survey worth reading twice. Lenders credited investment activity for data centers and solar and wind farms with helping hold values up.

That is not farm income buying farm ground. That is somebody who has no intention of raising a crop setting the floor under your comps. Keep it in mind the next time an appraisal comes across your desk for a gift or an estate. The sale down the road may say more about a transmission line than about corn.

The stress is in the credit file

The land number is calm. The loan numbers are not.

Farm loans with major or severe repayment problems reached 3.7% in the second quarter, up from 2.9% a year earlier. That is the highest reading since 2020.

The survey indexes tell the same story. On these, 100 means no change from a year ago:

• Repayment rates: 73. Not one lender reported repayment running better than a year ago. Twenty-seven percent said it is running worse.

• Renewals and extensions: 124. Loans are getting pushed rather than paid.

• Loan demand: 111. Operations need more money.

• Fund availability: 90. Lenders have less to give them.

More demand against less supply, with repayment already slipping. That combination is how a slow year turns into a hard one.

Interest rates ticked up slightly from the first quarter in nominal terms and came in lower in real terms: operating loans averaged 7.12%, feeder cattle 7.14%, and farm real estate 6.79%.

Nobody expects a move

Only 5% of lenders expect farmland values to rise in the third quarter. Eighty-one percent expect them to sit right where they are.

Look at what lenders expect to be lending for. Operating loans, feeder cattle loans and FSA-guaranteed loans are all expected to run higher. Farm machinery, grain storage construction and farm real estate are all expected to run lower.

Borrowing for inputs is up. Borrowing for iron is down. That is a farm economy funding this year’s crop instead of next decade’s capacity, and it tells you more than the land number does.

If you elected out of the business interest limitation as an “electing farming business” back in 2022, 2023, or 2024, the IRS just handed you a chance to undo it. But you likely have until October 15, 2026, at the latest, and for some returns that date is already gone.

Rev. Proc. 2026-17 came out March 18, 2026. It lets you withdraw the Section 163(j)(7)(C) electing farming business election and be treated as if you never made it. That election used to be irrevocable. Now it is not, at least for a short window.

Why you would want out

When you made the election, you traded away depreciation to keep your interest deduction. Farm property with a recovery period of 10 years or more had to go on ADS, and none of it qualified for bonus depreciation. That means:

• Drainage tile and land improvements went from 15-year to 20-year,

• Single purpose ag structures went from 10-year to 15-year,

• Machine sheds and general-purpose farm buildings went from 20-year to 25-year.

Your seven-year machinery was never affected.

The One Big Beautiful Bill Act changed the math. Starting with tax years beginning after December 31, 2024, you get to add depreciation back when computing adjusted taxable income again. That makes the interest limitation far easier to live with. And 100% bonus is now permanent. So, the election you made to solve a problem is now mostly just costing you depreciation.

A quick example

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Here’s a trap worth flagging before a client gets excited about the new $2,500 employer contribution to Trump Accounts: the owner usually can’t take it for their own kids.

The new rules let an employer put up to $2,500 per employee into a Trump Account and exclude it from that employee’s wages — a genuine tax-free fringe benefit under Section 128. The catch is who counts as an “employee.” The proposed regulations limit it to common-law employees and say self-employed individuals were intentionally left out.

For a farm, that means a sole proprietor — a Schedule F farmer — can fund $2,500 into their employees’ accounts tax-free, but not into their own children’s accounts through this route. The owner isn’t an employee of the operation, so there’s no tax-free contribution for the boss.

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If you have young children or grandchildren, there’s a good chance a check is landing in their Trump Account courtesy of Michael and Susan Dell — and the way it’s structured is worth understanding, because it sidesteps the normal contribution cap entirely.

Here’s the short version. The Michael & Susan Dell Foundation has pledged about $6.25 billion, structured as $250 per child for as many as 25 million kids. Eligibility is set by class, not by application: children born in 2016 through 2024 who live in a ZIP code with median family income of $150,000 or less. The deposits started going out around July 4, 2026.

Why the $250 doesn’t count against the $5,000 limit

This is the part that matters for planning. A Trump Account normally takes up to $5,000 a year in contributions from all sources on behalf of the child. If the Dell money counted against that cap, it wouldn’t be much of a gift — it would just crowd out what the family could put in.

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Contributions to Trump accounts opened on July 4, 2026. If you have kids or grandkids under 18, this is the rare tax provision that is simple to execute and enormous over a long horizon.

Put $5,000 a year into a grandchild’s account from age 1 through age 17. That is $85,000 out of your pocket. At an 8% return, that child is sitting on roughly $4.6 million at age 60 and roughly $10 million at age 70. Convert it to a Roth along the way and most of that comes out tax-free.

I want to walk through the mechanics, run the growth, and then flag the one trap that ruins this if you get it wrong.

The Rules, Briefly

A Trump account is a custodial traditional IRA under new Code Section 530A, established for a child who has not turned 18 before the end of the year the election is made. Here is what matters:

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You have heard the argument. The wealthy never sell anything, so they never pay tax. They just borrow against their stock or their land, live off the loan proceeds, and let the step-up in basis wipe out the gain when they die. Buy, borrow, die.

There is truth in it. But almost nobody who repeats the argument has actually run the interest cost against the tax cost. When you do, the picture gets a lot more interesting, and the answer turns on one number that has nothing to do with the tax code.

Let me show you.

The setup

Assume a taxpayer holds $10 million of stock or farmland with a zero basis. He needs $1 million of cash to live on.

He has two choices.

Option 1: Sell and pay the tax. At the top capital gain rate of 23.8 percent (20 percent plus the 3.8 percent net investment income tax), he has to sell $1,312,336 of assets to net $1 million. The tax bill is $312,336. One time, done.

Option 2: Borrow. He pledges the portfolio and borrows $1 million at 6 percent. Interest runs $60,000 a year. If the interest is deductible at 37 percent, his after-tax cost is $37,800 a year.

The raw cash comparison

Here is what the borrowing costs him over time compared to the $312,336 tax he would have paid on day one.

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I got this one wrong, and a sharp reader caught it. If you read my post titled “2025 ARC/PLC Limit is Really $150,880,” throw it out. The sequestration cut does not come off the back end of your payment limit. It comes off the front end, and for most of you at the cap it costs you nothing.

Here is the language from subparagraph 6 G of the 1-ARCPLC handbook, and note there are two different rules depending on the year.

For 2019 and prior years: “a sequestration percentage will be applied to the payment amount determined after all reductions have been applied, including payment limitation provisions.”

For 2020 and later years: “a sequestration percentage will be applied to the payment amount determined before any reductions have been applied, including payment limitation provisions. The sequestration amount is reduced from the gross payment amount for the producer receiving the payment as the first step followed by any additional reductions, including payment limitation.”

FSA flipped the order starting with the 2020 crop year. Sequester first, then apply the cap. That is the opposite of what I told you.

The Example

Farmer Bob computes $200,000 of 2025 ARC/PLC before any reductions.

Old way, the way I wrote it: apply the $160,000 limit, then cut 5.7%, check is $150,880.

Correct way: cut 5.7% off the $200,000 first, which gets you to $188,600. Then apply the $160,000 limit. Bob’s check is $160,000.

Bob loses nothing to sequestration. The 5.7% came out of the $40,000 that was going to disappear at the cap anyway.

FSA uses the same math in its own handbook example. An entity computes $147,000 of PLC, sequestration at 5.9% drops it to $138,327, the payment limit applies, and the entity receives $125,000.

Where the Breakeven Sits

Divide $160,000 by 0.943 and you get $169,671. That is your number.

If your gross computed payment is $169,671 or more, you get the full $160,000 and sequestration is a non-event.

If your gross is under that payment limit, you eat the full 5.7%. A farmer with a $150,000 gross payment takes home $141,450.

So, the folks who actually pay for sequestration are the ones below the cap, not the ones above it. I had that backwards.

Two Other Notes

First, the sequestration percentage in the handbook table is keyed to the fiscal year the contract was approved, not the fiscal year the check goes out. It is 6.2% for FY 2019, 5.9% for FY 2020, and 5.7% for FY 2021 through 2030. Either way you land on 5.7% for the 2025 crop.

Thanks to the reader who pushed back on this. Keep doing that.

I got a question this week that comes up more than you would think. A farmer has a big net operating loss carryover sitting on the return. Does that carryover count against him on the 75 percent farm income test?

My answer is no.

The two-year problem

Think about a net operating loss as living in two different years.

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Most farm tax writing is about cutting income. Plenty of farmers have the opposite problem. After two soft grain years and a big equipment purchase, you are staring at a return where the standard deduction goes to waste and the cheap brackets go unused.

Here is what gets missed. Most income-raising moves are elections you make on the return, not decisions you had to make by December 31. For a 2026 return, that gives you until October 15, 2027, if you extend.

Why you would want more income

The 2026 standard deduction is $32,200 for a joint return. If both spouses are 65 or older, the stack reaches $47,500 with the $1,650 per spouse age addition and the $6,000 per person senior deduction. Unused, it is gone forever.

The cheap brackets are worth filling. A joint filer runs 10% and 12% all the way to $100,800 of taxable income. Paying 12% now beats paying 22% or 24% later. Income averaging also needs income to work with, and general business credits like 45Z are worthless in a zero-tax year.

The tools, in order of usefulness

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Probably not. And the September 15 date is the reason.

I have had this question four times in the last two weeks. A family farms through a C corporation, they have read about the new qualified pass-through entity rules, and they want to know if they can file a Form 2553 now, treat it as retroactive to January 1, 2026, and pick up three payment limits instead of one on the 2026 crop.

I would not plan on it. Here is my thinking, and what I would look at instead.

The Rule and the Date

OBBBA ended the old disparity where general partnerships could stack limits, but LLCs and S corporations were stuck with one. The June 2 final rule defines a qualified pass-through entity as a partnership under Subchapter K, an S corporation as defined in Section 1361(a), an LLC that does not affirmatively elect corporate treatment, and joint ventures and general partnerships.

Two points from that rule drive the answer. The QPTE changes are effective beginning with the 2026 program year, not retroactively to 2025. And the applicable date for determining ownership interest for QPTEs for 2026 is September 15, 2026, with current participants that are LLCs or corporations required to file updated farm operating plans declaring their operation type.

So, the question is not what your entity looks like next April. It is what it is on September 15, 2026, roughly seven weeks out.

Why I Think the Late Election Comes Up Short

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Federal capital gain rules are the same in all 50 states. State rules are not. Most farmers assume the state tax on a land sale is just the state rate times the gain. In more than a dozen states that is flat wrong, and the difference is real money.

Here is a $2 million gain on farmland and what the state takes in six different places:

Same gain. Same ground. Six different answers.

The states that can wipe it out entirely

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I wanted to see how much the ag map has changed since the 2022 peak, so I pulled USDA’s top ten states for both years and put them side by side.

The same ten states are still on the list. Nobody dropped off and nobody new showed up. But five of them changed rank, and one state moved two spots in each direction.

Here is the comparison:

Every state that gained is a cattle or dairy state

Texas added $6 billion. Nebraska added $5 billion. Kansas added $2 billion and jumped from seventh to fifth.

Cattle is now the top commodity in eighteen states, more than any other product. It is the largest single line in Nebraska at $17.8 billion, Kansas at $14.8 billion, and Texas at $13.6 billion.

Every state that lost is a corn and soybean state

Minnesota dropped $5 billion and fell from fifth to seventh. Iowa dropped $3 billion. Illinois, Indiana, and North Carolina each dropped about $2 billion.

Corn in Iowa came in at $11.7 billion for 2024. In Illinois it was $10.2 billion. Both are well off where they were when prices peaked.

Wisconsin moved up without earning a dollar

Wisconsin went from tenth to eighth and its number did not move. Dairy held at $7.0 billion while the grain states around it slid backward. Standing still was enough to pass two states.

California is still in its own category

California added $8 billion and now sits at $67 billion, roughly $26 billion ahead of Iowa. And its biggest commodity is not almonds or grapes. It is dairy, at $8.6 billion.

If you applied for ECAP back in early 2025 and your payment ran up against the $125,000 limit, you may still have another $125,000 or more coming — but only if you get form CCC-943 on file by August 17, 2026. That date is now about three weeks out, so this is one to take care of this week.

Here is the background. ECAP applications closed on August 15, 2025. The base payment limitation is $125,000 per person or entity. But if 75% or more of your average gross income for 2020 through 2022 came from farming, ranching, or forestry, your limit jumps to $250,000. The form that unlocks the higher limit is CCC-943, and here are the part folks miss: its deadline runs a full year past the application deadline. You did not have to have it in with your original application. You have until August 17, 2026.

A few things to keep in mind:

• It is gross income, not AGI. The test uses your statutory gross income under Section 61 of the tax code — not adjusted gross income, and not the “total income” line on your return. There is no $900,000 AGI cap in play here. It is strictly the 75% gross income test.

• A CPA, EA, or attorney has to certify it. For ECAP, FSA is letting enrolled agents sign the certification, not just CPAs and attorneys. That is a bit broader than the usual rule, so take advantage of it.

• Equipment gains count. Gains on the sale of machinery and equipment count as farm income for the 75% test. If you ran the numbers earlier, came up short of 75%, and gave up, run them again with your equipment gains included. A fair number of producers who thought they missed the cut will actually qualify.

Remember, the higher limit only does you any good if your calculated ECAP payment already exceeds $125,000. But if that is you, this is worth a phone call to your tax advisor today. Getting CCC-943 signed and on file before August 17 could be worth up to another $125,000 so don’t let the clock run out on it.

Ag Tax University is a company that Penny Wade Smith and I own that provides CPE to tax professionals such as CPAs, but we also provide guidance for farmers who wish to learn and know more about income taxes, farm programs planning and other related matters.

For years, farmers have asked me some version of the same question: “Is there somewhere I can just get this explained in plain English?”

Starting this week, the answer is yes.

Ag Tax University is launching ATU Field Notes — a library of short videos made for farmers and ranchers, not tax professionals. Each one takes a single decision you actually face — prepaying inputs before year-end, renting out your ground, whether an LLC changes your taxes — and explains how it works in fifteen minutes or less. Plain language. No code sections, no jargon. Then it hands you the right questions to bring to your own tax preparer.

We’re launching with about 40 Field Notes covering tax, FSA programs, and farm management, with more on the way.

Here’s one to watch first: the new 2026 per-person FSA payment limits for LLCs and S-corps. There’s a September 15 filing deadline, and for multi-member operations it could mean real money.

Field Notes are educational, not individualized advice — your tax preparer stays your tax preparer. But you’ll walk into that meeting knowing exactly what to ask.

Individual Field Notes are $12 each, or $99 gets you the whole library for a year — everything there now, plus everything we add.

Find them at agtaxu.com.

We have fielded several reader questions lately on the beginning farmer benefits in the One Big Beautiful Bill Act (OBBBA), and most of them come down to the same worry: “How do I make sure my son, or daughter actually qualifies?” The benefits are real and worth chasing. But there’s a catch that tangles up a lot of family operations, so let me give you the short version.

The benefits

The headline change is crop insurance. Under prior law, a beginning farmer picked up an extra 10 percentage points of premium subsidy for their first five years. OBBBA doubles that window to 10 years and stacks more on top in the early years:

• Years 1 and 2: an extra 5 points (15 above a normal producer)

• Year 3: an extra 3 points (13 total)

• Year 4: an extra 1 point (11 total)

• Years 5 through 10: the base 10 extra points

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Here is the situation I get asked about more than any other in a terminal diagnosis. A couple owns 1,000 acres in joint tenancy. They paid $500 an acre in 1978. It is worth $12,000 an acre today. The husband has been given six months to live. In a separate property state, when he dies only his half of that land gets a new basis. The wife keeps her old $250,000 basis on her half, and if she ever sells, she pays tax on roughly $5.75 millions of gain that could have disappeared.

There is a fix, and it is a good one. But it comes with a one-year clock and a list of ways it can blow up on you.

The technique

The healthy spouse gifts appreciated property to the terminally ill spouse. Under Section 2523, gifts to a U.S. citizen spouse qualify for the unlimited marital deduction, so there are no gift tax and no exemption used. The ill spouse now owns the property outright. When they die, it is in their gross estate, and under Section 1014 it gets a basis equal to fair market value at date of death. Their will or trust leaves it back to the surviving spouse, which qualifies for the marital deduction at death, so again no estate tax.

The survivor ends up owning the same property they started with, now carrying a full stepped-up basis instead of half of one.

Run the numbers on the example above:

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A reader sent this question to us:

Question, my wheat PLC payment exceeds the $160,000 even after the 5.7% reduction. Do we get the full $160,000 or is the max payment reduced?

The max payment is reduced. Your check tops out at $150,880.

I know that is not the answer you wanted, and it is the single most common misunderstanding I hear about sequestration. The logic that feels right goes like this: I calculated $200,000 of ARC/PLC, the limit is $160,000, so there is $40,000 of cushion sitting there and the 5.7% haircut should come out of the cushion. It does not work that way. The excess above the limit simply disappears, and then FSA sequesters what is left.

The actual wording

Here is subparagraph 6 G from the 1-ARCPLC handbook:

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FSA issued Notice PL-318 on June 11, 2026. It answers a question we have been fielding for years. If a husband-and-wife file jointly and a CPA splits their income so one spouse gets under the $900,000 average AGI cap, which numbers do you use for the 75% farm income test?

The answer is the same split. You do not get to allocate income one way for the $900,000 test and a different way for the 75% test. Whatever manner the CPA used to divide the average AGI drives both.

The example

Individual A farms. Individual B has off-farm income. Joint average AGI is $1.5 million, well over the cap.

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