Struggle over tax break for inherited farmland churns below surface in reconciliation bill

[turbinetree]

By Daniel Vock, Minnesota Reformer
Published September 19, 2021

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WASHINGTON — Agricultural groups and farm-state lawmakers notched a significant win when U.S. House Democrats chose not to touch a big tax break for inherited property, avoiding for now a confrontation.
But opponents remain wary that the idea could come back at any time as Democrats shape their massive $3.5 trillion budget reconciliation package, and search for ways to help pay for the most significant expansion of the social safety net since the New Deal.
Farm lobbies and Republicans, along with influential Democrats like House Agriculture Chairman David Scott of Georgia, strongly objected to tax changes that President Joe Biden proposed in his “Build Back Better" plan for farmland and other assets handed from one generation to the next.

Biden, along with Agriculture Secretary Tom Vilsack, wanted to end the “stepped-up basis" for determining capital gains taxes on those assets. Vilsack, the former governor of Iowa, has taken to the pages of The Wall Street Journal and popped into a White House press briefing to make the case that closing loopholes like these is necessary to make sure the wealthy pay their fair share.

https://www.rawstory.com/inheriting-farmland/

[GPV]

1. Protect small farmers, not monster corporations.

[jimfields33]

2. Yep.

However, if taxes cause big farms to shut down, we can’t have that happen. Farms are dwindling as it is. We do not want to import all food.

[Delmette2.0]

3. Yes!

[Kaleva]

5. Many of the monster corporations are family farms. They are just incorporated.

[Midnight Writer]

4. Seems like it would be simple enough to carve out an exemption for farmland.

I don't have any problem with a family farm or small business being passed along tax free.

It is the giant fortunes of families worth many millions that need to be taxed.

Perhaps the inheritance tax could be graduated. First couple of million or so free, then a graduated increase after that.

[csziggy]

8. Right now the first eleven million plus of an estate is not taxed

This estate tax amount will run out in 2025 so in 2026 it will drop back to "only" 5 million that will not be taxed.

Q. How are gift and estate taxes figured?

A. In general, the Gift Tax and Estate Tax provisions apply a unified rate schedule to a person’s cumulative taxable gifts and taxable estate to arrive at a net tentative tax. Any tax due is determined after applying a credit based on an applicable exclusion amount. A key component of this exclusion is the basic exclusion amount (BEA). The credit is first applied against the gift tax, as taxable gifts are made. To the extent that any credit remains at death, it is applied against the estate tax.

Q. How did the tax reform law change gift and estate taxes?

A. The tax reform law doubled the BEA for tax-years 2018 through 2025. Because the BEA is adjusted annually for inflation, the 2018 BEA is $11.18 million, the 2019 BEA is $11.4 million and for 2020, the BEA is $11.58 million. Under the tax reform law, the increase is only temporary. Thus, in 2026, the BEA is due to revert to its pre-2018 level of $5 million, as adjusted for inflation.

More: https://www.irs.gov/newsroom/estate-and-gift-tax-faqs

One of the best ways to protect small farms (and businesses) is to plan ahead. Gifts of $15,000 a year are not taxed, so the parents could gift $30,000 ($15k for each parent) of the farm or business to each child. Larger gifts would be taken out of the eventual inheritance but would still be under the limit of the estate taxes listed above. I don't know if it is still in effect, but at one point there was a one lifetime large amount that could be gifted without tax consequences.

Unfortunately most people do not realize their options and do not have access to the expertise that could protect their families assets. And sometimes, the older generation does not want to give up control, and the younger generation does not want to follow in the family businesses whether farming or otherwise.

I am not an estate attorney or a CPA, but my family has been dealing with my parents' sizeable estates since 2013 Dad died in 2013, Mom in 2018) so have had to keep track of the limits - and the executors have had to deal with gifts over the $15k limits.

Edited to add: Another way to protect assets is life insurance. Back when estate taxes were at 50% my father bought a life insurance policy for the amount of his then estimated estate taxes. Since estate taxes had dropped and the untaxed limit had gone up, that not only paid the taxes, it added to the amount we got out of the estate.

[cadoman]

6. sadly there are no "small" farmers any more

Absent boutique growers, you have to have at least 1000 acres to be competitive and justify all the equipment purchases.

That's why the inheritance tax is a big deal for farming families. You have millions tied up in equipment, land, wells, silos, etc., and if that gets treated as income to your children they will be forced to immediately sell to pay the tax.

Compare this to a situation like the Walmart kids, who will just receive fewer shares of a company. Them getting fewer shares doesn't cause Walmart to go bust--they just own less of it.

[dsc]

7. This is such total bull shit

First 2.5 million is exempt, totally and completely, from the taxation. Now using the 10,000 per acre profit in the article that is 250 acres completely free and clear, no taxes. Second, using the 500 acre figure in the article they are paying taxes on about 2.5 million but, one, the exemption was eventually increased to 10 million, not mentioned in the article, and two they don't pay unless they sell, in short providing a powerful incentive not to sell.