2 Senators Work to Eliminate Capital Gains Tax on Chapter 12 Bankruptcies

Senator Grassley (D-Iowa) and Senator Franken (D-Minn) proposed a bill today in the Senate to eliminate capital gains tax that a farmer may owe when selling property after entering a Chapter 12 bankruptcy.  Chapter 12 bankruptcy is designed to allow farmers to reorganize their farm operations and keep the farm in the family and operating.  In many cases, certain assets may need to be sold as part of the bankruptcy process.

The US Supreme Court ruled in 2012 that the capital gains generated by these sales are subject to income tax.  The two senators do not believe this was the original intent of Congress when the wrote the original law during the 1980s farm debt crisis, so this new bill is designed to eliminate the imposition of capital gains or other taxes on the sale of property due to the Chapter 12 bankruptcy.

The Senators are not proposing that farmers are headed toward another 1980s type crisis.  Rather, they are simply trying to fix the wording of the original law finalized in 2005.