What Might Estate Tax Reform Look Like?
There is a lot of chatter regarding estate tax reform and how it might work. We will review what we “know” right now.
Q. Will there be a repeal of the estate tax?
A. Both President-elect Trump and the House Republicans want to completely repeal the estate tax. However, they do not have the necessary 60 votes in the Senate to permanently repeal the tax. Therefore, it is likely that the repeal will only last for 10 years (if it even happens).
Q. What about the gift tax?
A. Both Trump and the House is completely silent on the status of a gift tax. It is likely that some type of gift tax will remain (likely to prevent donors from transferring assets to states with no state income tax, selling the assets and then transferring them back with no state income tax being paid). However, we don’t know if the lifetime or annual exclusion amount will change, etc.
Q. What about a step-up in basis at death?
A. President-elect Trump has proposed that the step-up at death be eliminated on some value of assets, however, the details on this process are very vague. I think most farmers with equipment and crop inventories would appreciate a step-up for their heirs. The step-up in land values only helps if the heirs plan on selling the assets.
Q. What about capital gains tax at death?
A. This may become a way for lawmakers to pay for repeal of the estate tax. This could be very similar to the Canadian system where assets are deemed to be “sold” at death. I think most of our farmers would prefer keeping an estate tax compared to owing capital gains tax at death and no step-up in basis.
As you can see, there is a lot of flux in estate tax reform. We will keep you posted, but wanted to update you on where it stands right now.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Paul,
Does this mean that upon my death, my heirs would not be able to get a stepped up basis if they did not sell the land?
Duane Schneider
duane-s@hotmail.com
620-376-8989