Transfer tax proposed, base change could weigh on agricultural heirs | 2021-04-13


Farm groups are bracing for a possible Congressional push to impose new taxes on inherited land and other assets to tackle wealth inequalities while increasing incomes. Democrats will have to fund new infrastructure or social spending.

President Joe Biden has offered to fund his $ 2.7 trillion infrastructure program, the American Jobs Plan, only with corporate tax increases, but in the coming days he is expected to release a second proposal. massive, the American Families Plan, with massive spending plans. for health care, education and childcare.

The White House did not indicate how he wished to pay for the second package, but Biden’s campaign included a number of proposals to increase taxes on top incomes and on inherited wealth, including eliminating the increase in the long-established basis for inheritance. assets.

Because of the mark-up, a person who sells an inherited property pays capital gains tax only on the capital gain that arises after the death of the parent or other person who left the property. Without the increase in base, the sale would be taxed based on the increase in value since the initial acquisition of the asset.

Several Senate Democrats led by Chris Van Hollen of Maryland are going beyond simply removing the increase by proposing to also tax assets over $ 1 million someone inherits. The proposed “transfer tax” would be deducted from any inheritance tax that would also be due.

To prevent high net worth individuals from circumventing tax by funneling property into trusts, assets held in trust would be taxed every 21 years.

“We have a fundamental problem in this country regarding people who inherit great wealth,” Van Hollen said. Agri-Pulse Tuesday. He said the exemption for the first million dollars in assets would limit the impact on farms.

Senator Chris Van Hollen, D-Md.

In announcing his Sane Taxation and Fairness Promotion (STEP) law in March, he called the strengthened base a “loophole” that offers “an unfair advantage to wealthy heirs.”

Here’s an example of how the transfer tax might work for farms: A son or daughter inherits 500 acres of cultivated land in Illinois worth $ 7,400 an acre that was purchased in 1980. for about $ 2,000 an acre, an increase in value of about $ 2.7 million, $ 1.7 million that would be taxable under the STEP Act.

The transfer tax, which would be declared on the deceased’s final income tax return, would be around $ 457,000, assuming Congress also accepts a Biden campaign proposal to raise the capital gains tax rate. At 39.6%, said Paul Neiffer, a farm tax specialist with CliftonLarsonAllen.

Federal capital gains tax would be calculated this way: about $ 400,000 would be taxed at 15%, the next $ 600,000 at 20%, and the remaining $ 700,000 at 39.6%, Neiffer said. There would also be an Illinois tax of approximately $ 85,000 due.

The good news for the heirs is that Van Hollen’s transfer tax could be repaid over 15 years as an installment loan, Neiffer said.

Democrats are highly unlikely to win GOP support to end the beefed-up base or impose a transfer tax; the question is whether they could keep the Senate’s 50 Democrats in line if they tried to push the spending package through the budget reconciliation process, which wouldn’t require Republican votes.

Democrats are looking for income “where they can,” said senior Republican Senate finance committee Senator from Texas John Cornyn. Agri-Pulse. “They don’t seem to understand that our farmers and ranchers are small businesses that this will harm disproportionately.”

Another Finance Committee member Senator Chuck Grassley, R-Iowa, told reporters on Tuesday that the base increase was one of the issues frequently raised at city meetings he held during the recent recess. two weeks in Congress. Taxes on inherited property “would particularly affect the high investments people have to make to raise pigs,” he said.

But some advocates of small farms and beginning producers say ending the strengthened base would discourage farm consolidation and make it easier for new farmers to acquire land.

Ferd Hoefner, agricultural policy consultant and former policy director for the National Sustainable Agriculture Coalition, said Van Hollen’s proposal was “well crafted” because of the $ 1 million exemption and the $ 15 installment plan. years for the taxes that would be due.

Chuck grassley

Senator Chuck Grassley, R-Iowa

“In an age when less than two-tenths of one percent of all agricultural estates pay any inheritance tax, and the increase in the base locks up farmland and keeps it out of the market, a Reform is clearly needed if agriculture is serious about creating new agricultural opportunities, slowing consolidation and tackling land price inflation due in part to current tax subsidies, ”Hoefner said.

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Inheritance tax rules could also be at stake this year as Democrats seek sources of revenue and seek to redistribute wealth. The inheritance tax exemption was doubled in the 2017 tax law and indexed to inflation – it’s $ 11.7 million this year – but is expected to be halved from 2026. Democrats could try to reduce the exemption sooner.

In March, Sen. Bernie Sanders, I-Vt., And several fellow Democrats, including Van Hollen, Kirsten Gillibrand of New York and Sheldon Whitehouse of Rhode Island, proposed the For the 99.5% law, which would increase rates of tax and would reduce the exemption on most assets to $ 3.5 million. There would be an additional exemption of $ 3 million for farmland.

The Sanders Bill would also increase the maximum conservation easement exclusion to $ 2 million.

The gift tax exemption would be reduced from $ 11.7 million to $ 1 million as part of the Sanders proposal.

The bill would bring in $ 430 billion in revenue over 10 years, according to an analysis by the Joint Committee on Taxation.

A spokeswoman for Van Hollen said he is still collecting comments on the discussion draft for the STEP law and will formally introduce the bill later. There is no estimate from the JCT on the amount of income it would generate.

The senior Republican on the House Ways and Means subcommittee on tax policy, Nebraska Representative Adrian Smith, said many farmers and ranchers were concerned about the possibility of an increase in inheritance tax.

Raising inheritance taxes “has become a matter of social justice” for Democrats, Smith said. “I hope we take full account of the impacts on a small family business, whether it is agriculture, manufacturing or otherwise.”

Download a summary of the STEP law here.

Download a summary of the For the 99.5% law here.

Ben Nuelle contributed to this report.

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