One of the results of the tax bill passed by Congress in December is that exclusion levels for the federal estate tax have doubled.
In practical terms that means far fewer farmers will be affected by the estate tax in the coming years.
The numbers are pretty straight forward. The exclusion level for federal estate taxes was scheduled to be $5.6 million in 2018. The total for a couple was scheduled to be $11.2 million. Doubling of those figures in the new tax law means that nobody pays the federal estate tax, also known as the “death tax” by its opponents, on the first $11.2 million of value of an estate (or the first $22.4 million for a couple).
In 2026, the exemption totals would go back to this past year’s levels unless Congress takes further action.
Kristine Tidgren, an attorney with the Center for Agricultural Law and Taxation (CALT) at Iowa State University, has a simple piece of advice for farmers and farmland heirs now that Congress has changed the federal estate tax law: You still need to do estate planning.
Very few farmers need to worry about paying a federal estate tax bill. But that was the case even before the new law raised the exemption, Tidgren says.
In 2016, there were 5,219 estate tax returns filed for taxable estates in the entire United States, she says. Only 682 of those included any farm property. And very few of those were comprised primarily of farmland.
Of course, rising farmland values in recent years led to concern in the farm community about the tax, and many farmers welcome the increase in the exemption level.
The passage of the new tax bill may serve as a reminder to take a new look at the will, the farm succession plan and the farm financial structure (such as a partnership or a corporation) to see if it is still the best choice.
There is no perfect farm financial structure that works for every operation, Tidgren says. Farmers need to work with their attorneys and financial advisors to determine what works best for their own situation.
For information about those subjects, she suggests farmers look online at Iowa State University’s Ag Decision Maker website at www.extension.iastate.edu/agdm/.