Farming is more than a business—it’s a legacy. And over the past few years, rising land values and strong commodity prices have given farmers a reason to feel confident about their net worth. But here’s the catch: deferred income taxes could be quietly taking a bigger bite than you think.
If you had to convert your assets to cash today, how much would actually be yours? A recent University of Illinois FarmDoc Daily report sheds light on the impact of deferred tax liability—and the numbers are eye-opening.
The Breakdown of Deferred Tax Liabilities
Your net worth isn’t just what’s on paper. It’s what’s left after taxes. Farmers typically hold wealth in three key areas, and each comes with its own tax burden:
- Land & Buildings – Lower capital gains tax rates apply, but deferred taxes could still range from $300,000–$350,000.
- Equipment – Taxed as ordinary income but not subject to self-employment (SE) tax, with similar liability levels as land & buildings.
- Grain & Receivables – The highest tax exposure due to income and SE taxes, often leading to $350,000–$400,000 in deferred liability.
The Hard Truth About Your Net Worth
Historically, deferred tax liability has accounted for 22–27% of a farmer’s net worth. That means if you’re not factoring in deferred taxes, you could be overestimating your actual wealth by at least 20%.
Many farmers “punt” taxes down the road, only to face bigger bills later. Well-managed operations take a proactive approach, optimizing tax strategies each year to stay ahead of the game.
Simple. Smart. Secure.
At AgQuest Financial, we believe financial security starts with clarity. Whether you plan to pass your land through your estate or transition your farm, understanding your true net worth is key.
Are you overestimating your net worth? If you’re not sure, it’s time for a closer look. Let’s talk about a strategy that protects your legacy for generations to come. Contact your AgQuest Relationship Manager today.