Estate Tax Relief Expiration Could Threaten Farms

The Southeast Farm Press reports that higher farmland values mean more people will face the difficult task of figuring out how to pay the estate tax and keep the farm in the family, after the current estate tax relief expires in December 2012.

Estate tax relief would have expired in 2011, but Congress passed a bill to set the exemption at $5 million and the top tax rate at 35% for two years. Unless Congress extends the exemption and rates, or even better, eliminates the estate tax, a $1 million exemption and a top tax rate of 55% will kick in on Jan. 1, 2013.

Farm families will be outside the exemption on as few as 143 acres in Iowa, where the average farm size is about 330 acres. In Minnesota, the transfer of just 166 acres from one generation to the next will come with a tax bill of hundreds of thousands of dollars.

Some farmers are able to avoid the tax through savvy planning. But, the cost of estate tax planning, an ongoing endeavor due to changes in farm structure and tax law, is a heavy burden on a farmer’s bottom line in a time of high production costs.

While farm income rose 28% this year, production expenses rose 12% to $320 billion. Some agricultural experts warn that increases in costs for feed, fertilizer, fuel and land could outpace increases in farm income after 2013, due to the cyclical nature of crop profitability. They advise farmers and ranchers to save now for the rainy days ahead, something that’s easier to do if you don’t have to pay lawyers and estate tax planners.

Today’s record-breaking farmland values should indeed be good news for farmers, but the threat of estate taxes to their families’ ability to continue their agricultural heritage puts a damper on things.