Minding Ag's Business

Story Book Endings for Estate Taxes



There's a happy ending for farm owners whooften go through years of planning and family turmoil to minimize their death taxes: By USDA's estimates, only 2.7% of farm estates owed federal taxes in 2014. That figure is down considerably in the last 15 years, thanks in part to efforts by Congress to raise the estate tax exemption from a modest $675,000 per person in 2000 to $5.43 million in 2015.

I'm speculating here, but suspect those low tax hits are no accident. Remember, farmland values have ballooned so fast since 2000, it's not unusual for a modest, 70-year-old Iowa farmer with 2,500 acres to have amassed a $20 million estate. If farms that size escape federal taxation, it's only because they had the sense to begin estate planning, buy life insurance and transfer ownership of assets years--and even decades--ahead of a death.

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By studying tax returns, USDA's Economic Research Service found the average farm estate that owed Federal estate tax had a net worth of $11.1 million and a tax liability of $1.68 million, paying an average tax rate of 15%. Large-scale family farms--those defined by gross sales in excess of $1 million annually--owed $2.223 million on average, however.

One surprising factoid: While very, very few wealthynonfarmers ever owe estate taxes, nearly one out of every six taxable estates in the US held some farm assets in their names at death. The average amount of farm property totaled $2.8 million. Do wealthy people just own land or do farm landowners get hit with a disproportionate amount of tax?

What the recent ERS report failed to note was that more than a dozen states impose their own form of death taxes, some with exemptions as low as $675,000. So failure to consult a professional planner can have serious ramifications, even if your federal estate return owes IRS nothing.

I'll be taking notes when several hundred tax practitioners gather in Indianapolis July 14-15 for the American Institute of CPAs annual agricultural conference. Estate and succession planning highlight the agenda. If you have questions you'd like to pose the experts, please send them my way or register yourself at http://www.cpa2biz.com/…


Follow me on Twitter@MarciaZTaylor

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Comments

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Bonnie Dukowitz
7/18/2015 | 7:13 AM CDT
You make some valid points, Don, however, W.W. #1 was almost 100 years ago. One should not ignore the fact that the rural roads, farm programs were legislatively enacted to allow food producers a means of getting the food to the population centers. That is, to provide an adequate food supply. The aim was not help to farmers. We still have the same gravel road,(constructed almost a 100 years ago, now supported by Township taxes, the same highline wire(constructed 60 some years ago, supported by the co-op members bills, paid each month, not Federal taxes. Maybe if the government would quit subsidizing huge stadiums and transportation systems to entertain the populace, the budget would balance a bit better.
Jacob West
7/17/2015 | 7:24 PM CDT
I have no problem contributing my fair share. My problem is with how the govt. picks winners and losers. Why do larger more efficient producers get punished with estate taxes while the smaller operations pay none? I sacrificed to grow a business,less vacations,toys,etc. Why? Just to share with the slackers? All I'm asking is to be allowed fair treatment. I'd be all for closing all FSA offices too. Get the govt out of my business and let everyone compete fairly. Everybody outside of Ag has the hate the big guy mentality. We all started with one acre just as Walmart started with one store. You want to talk about a declining and deteriorating America, could it be because the govt is killing the desire to achieve? I wish I would have worked less now. let somebody else take care of me. What happened to Greece is that the makers quit because they got sick of everybody sucking off them. We are on the cusp of that happening here. Why try to prosper when the govt keeps trying to create a socialist society?
Don Thompson
7/17/2015 | 3:25 PM CDT
Bonnie, A little over 100 years ago the US was not the world's policeman and peace maker with an immense military to support. A little over 100 years ago there were no farm programs that kept marginal farms going. A little over 100 years ago there were no programs to help the poor and disadvantaged and rural residents. A little over 100 years ago most rural roads were dirt and there was no rural electric or highway system or airport system. Maybe Bonnie, a lot of folks were born in the wrong century?. I suggest it is time to get onboard because the train of progress has left the station.
Bonnie Dukowitz
7/17/2015 | 1:38 PM CDT
Contributes less Don? Please order your food from China or Iran while you lay on the beach. Income taxes (capital gains) on homes are also given a break Pedro. Maybe the government just has its hands in too many things. A little over a 100 years ago these taxes didn't exist.
Don Thompson
7/17/2015 | 10:33 AM CDT
This discussion has me wandering just what rural America is willing to provide the USA to keep it going. Nobody wants to pay taxes and our infrastructure is approaching 3rd world. Very few think they should join the military to support the wars they say they support. Police departments and volunteer fire departments are always short handed. Even rural blood banks and the percentage of people donating is extremely low. People say they won't vote because they fear it will put them on the roles to serve jury duty! Meanwhile, governments provide tax breaks, crop and/or disaster insurance, and countless incentives to people and business to stay in rural America. And after all of that, people complain that they have to plan ahead to pass millions of dollars to heirs - why not let me do it for nothing?? Finally, rural America contributes less than it takes from the Federal government, ie, America's Greece. Are we all just getting in line to take while chastising those who stand in a different line?
Pedro Sanchez
7/17/2015 | 8:31 AM CDT
Bonnie, every one pays real estate tax on their land or homes or buildings. That is the cost of "ownership". Jacob West, if you own the land and are running it yourself, then your kids didn't earn a penny of it. You earned it off the land. Do you hire them? Do you rent it to them? If either scenario is the case, again, they are either getting paid for their time or have an opportunity for investment, but do not own the land and their for didn't earn the gain in the appreciated value. You as the landowner did. I understand that the estate tax exemptions have been a moving target, but I think Congress finalized it for some time. if you can't/won't plan and adjust as times change, you don't deserve to complain about having to pay estate taxes. There are tons and tons of options out there to work around or minimize the tax. I just talked to a individual who inherited 700 acres and he had to pay $99k in estate taxes only if he sold the land within 10 years. Otherwise nothing. That doesn't sound like he is having to sell the farm!
Jacob West
7/17/2015 | 6:20 AM CDT
I didn't know money fell from the sky based on your birth certificate. You can always spot a desperate liberal when the race card is played. You need a new comeback, Bro.
Unknown
7/16/2015 | 9:12 PM CDT
Re Mr West I am a non whining Liberal. The odds of your good fortune became immeasurably better when you were born a white Amerrican male. Give back, Bro.
Bonnie Dukowitz
7/16/2015 | 12:00 AM CDT
Sorry Pedro. We send two checks to the county every year for real estate taxes..
Jacob West
7/15/2015 | 5:01 PM CDT
10,800,000 if you're married, not single. Where does this magic number come from anyway? Why not make it 20 million or some other number? It was unlimited in 2010. It is a moving target that always changes and makes it extremely difficult to plan for. It is based on government greed. They sure as hell didn't take the risk to earn it, nor did the whining liberals with their hand out to steal it. How I raise my kids and what they get when I die is also my problem. Hopefully when I die my children are in their 60's and have a life invested in tending the land. In that case, THEY EARNED EVERY PENNY OF IT. The best way to kill a farm is to have to sell it off to pay taxes. If you cant compete, you have no business farming. Leave it to the ones that do and this country will continue to enjoy cheap food
Pedro Sanchez
7/15/2015 | 8:19 AM CDT
There were a couple of good points made here. First, If you realized a gain on your property, much like stocks or commodities, you have to pay a capital gain tax. That is not double taxation. If you purchased it for $100,000 and it is now worth $1,000,000, you have a $900,000 gain that you have paid no tax on or "earned". The government wants to collect some revenue for you to pass that wealth to your kids. However, they are willing to let you keep about $10,000,000 before they dip into your pocket. It's not like they are being unreasonable. Another point was brought up that the assets were purchased with after tax money. The only asset that I know that farmers pay with after tax dollars is real estate. Buildings, tile, equipment, etc. are bought and depreciated, and never taxed until sold. Again, no double taxation. The estate tax will likely never affect most of us. It is indexed to inflation now, and we "hate" this tax because we are greedy SOB's. I would hate to have to pay it, but you know what, if I have accumulated more than $10,800,000 of net worth by the time I die, then I don't think my kids should piss and moan about have to pay a little bit of tax to Uncle Sam, because guess what, THEY DIDN'T EARN A PENNY OF IT! Generational wealth can lead to a bunch of lazy, egotistical, narcissists that think that they deserve the world. How many farmers do we know that went broke in the 80's because Dad handed them the farm and they let it get away? How many more are we going to see in the future? Do we really want a bunch of "Trust Fund Baby's" in farming? Ones who really don't care if they make money or not, because the well never runs out? How do you compete with someone like that? Think about that before you want to get rid of an estate tax.
Roger Cooper
7/12/2015 | 9:51 PM CDT
How many times does a family have to pay for an asset during 3 generations? You guessed it ------- 3!
Unknown
7/12/2015 | 7:52 PM CDT
Wally: because luckily, you were born in America. Give back, amigo.
Wally frey
7/9/2015 | 1:21 PM CDT
why should an event such and death trigger a tax
Don Thompson
7/7/2015 | 8:37 AM CDT
The federal estate tax exemption is around $5.4 million or as much as $10.8 million per couple if qualified after considering basis, etc. Plus, generous gifting options are available through a correctly established ownership entity. The number of individuals subject to federal estate tax is quite small just as Pedro Sanchez noted earlier in this blog. It does require some planning and that may cost more than one may wish to pay for.
Unknown
7/6/2015 | 4:54 PM CDT
My family farm estate was built with after tax dollars. Several years ago I purchased farmland for $1,000,000. Put every asset I owned up for collateral to borrow the money. My accountant estimated it will take $2,000,000 in after tax dollars to pay for this farmland. I can't imagine having to pay an additional estate tax. What would incentivize anyone to risk all they have to try and build a farm estate only to be taxed a second time.
Don Thompson
7/6/2015 | 8:02 AM CDT
Escalating land values that are realized later through real estate sales have not had those gains taxed previously. Just as stock or commodity price increases result in tax obligations, it would make sense that land value gain would also.
Bonnie Dukowitz
7/3/2015 | 5:46 AM CDT
I do not understand why the government should be entitled to an estate in the first place, the size should not make a difference.
Jacob West
7/2/2015 | 4:30 PM CDT
Where does everyone think these assets came from? They were purchased with money that was already taxed once as income tax. How is double taxation fair. The reason the country is broke is because achievement is punished through wealth redistribution. Maybe if people were allowed to keep more of what they work so hard for, there would be more of an incentive to work in this country
Bill Billson
7/1/2015 | 9:42 PM CDT
Farmers with estates worth multi-millions should be ashamed that they feel they need to avoid taxes. What an embarrassment to the rest of farmers and society. I can't believe the author is advocating that the uber rich should be allowed to avoid taxes. I bet she also wonders why this country is broke. GET A CLUE AMERICA!
Unknown
6/30/2015 | 8:19 PM CDT
The American Farmer should be proud to pay taxes.
Unknown
6/30/2015 | 8:17 PM CDT
$20M estate and no estate taxes??? Greece here we come!
Pedro Sanchez
6/26/2015 | 8:37 AM CDT
This is why I get a kick out of the all the uproar over the estate tax. If you have a good plan implemented, you more than likely can skirt the taxes owed. I don't know exactly how many farmers there are, but if you assume there are currently 2,000,000 farm estates, ones that are actively farming, then you would roughly have about 54,000 farmers that would have a problem. That's pretty small potatoes, and those 54k have some money/assets that can handle the tax. The secondary side of this estate issue is one that I don't see answered very often. If I am an active farmer in my 70's and I have no children that are active in the farm, when will that land ever hit the open market for an active farmer to buy it? It's a legitimate question that doesn't get answered. Considering that 90% of farms do not make it to the 3rd generation, this is something that people forget about...absentee landowners that are so far removed from agriculture that they see it as an investment or really care when revenue is below the cost of production.