Farm Tax Shields Hold Firm as Democrats Take Congress

The 2026 elections have shifted congressional control to Democrats, but the federal tax code governing agriculture remains largely intact under the One Big Beautiful Bill Act (OBBBA) enacted in July 2025. While the new majority holds legislative power starting in January 2027, President Trump retains veto authority that complicates efforts to reverse existing tax provisions.

The OBBBA permanently fixed individual income tax rates at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. It also made the standard deduction permanent, setting it at $32,200 for married couples filing jointly and $16,100 for single filers in 2026. These changes stabilize the tax environment for agricultural businesses that face volatile income from commodity prices and weather conditions.

A critical component for farm capital investment is the restoration of 100% bonus depreciation. This provision is permanent under current law for qualifying property acquired after January 19, 2025. It allows taxpayers to deduct the full cost of assets like tractors, combines, and grain storage in the year they are placed in service. The bill also created a special depreciation allowance under IRC Section 168(n) for production property, requiring construction to begin before January 1, 2029, and placement in service before January 1, 2031.

The OBBBA also made the Section 199A qualified business income deduction permanent. This deduction allows pass-through entities, such as LLCs and S corporations common in agriculture, to deduct up to 20% of qualified business income. It includes a minimum $400 deduction for taxpayers with at least $1,000 in qualified business income. This provision is not scheduled to expire in 2028.

Estate and gift tax rules have also changed permanently. The basic exclusion amount rose to $15 million per person, indexed for inflation, effective in 2026. A married couple can exclude up to $30 million from estate taxation. This change provides flexibility for transferring farmland and machinery, which often hold significant value relative to farm debt.

Not all OBBBA provisions are permanent. Four deductions generally expire after December 31, 2028. These include deductions for qualified tips, qualified overtime compensation, qualifying automobile loan interest, and additional deductions for taxpayers age 65 and older. Congress will need to act in 2029 to extend or modify these specific provisions.

The Child Tax Credit expanded under the OBBBA to a maximum of $2,200 per qualifying child for 2026 and $2,300 for 2027. The refundable portion is $1,700 for 2026 and $1,800 for 2027. The legislation also created Trump Accounts, which provide a one-time $1,000 federal contribution for children born between 2025 and 2028. These accounts allow additional contributions from parents and employers under specific rules.

Democrats will control the legislative agenda in 2027 and may pursue changes to energy incentives like the Section 45Z clean fuel production credit. This credit influences the demand for agricultural feedstocks such as corn and soybeans. However, any bill altering these rules requires presidential approval or a two-thirds vote in both chambers to override a veto.