The Death Tax

By Dennis Sun

As I understand, if a person isn’t set up with certain estate planning, their heirs, when they pass on from this life, may be facing an estate tax on the transfer of property. Although many of us don’t think about it every day, this tax does cause concerns for families in agriculture.

Currently, the Tax Cuts and Jobs Act includes an estate tax exemption, which expires in 2025. This act requires an estate to file and pay taxes when gross assets exceed $11.58 million per person. Then, after Dec. 31, 2025, the exemption amount returns to $5 million per individual adjusted for inflation.

Farmers and ranchers with assets above the estate tax exemption often must liquidate some of those assets to meet estate tax obligations, which can reach as high as 40 percent of the taxable amount. 

A recent study, America’s Diverse Family Farms, by the United States Department of Agriculture’s Economic Research Service indicated, as of 2018, 98 percent of the two million plus farms and ranches in the U.S. were family operations. 

Across the country, the price of farm and ranch land always seems to be going up. The study states, over the last decade, the farm and ranch land value has increased by nearly 50 percent. 

With the current pandemic, wildland fires and crazy taxes in some states, this value will only go up, especially in conservative states of the Northern Rocky Mountains, as more and more people move this way.

During 2020, the national average value of farm real estate, including all land and buildings on these farms was $3,160 an acre, unchanged from the 2019 number. Based on this value, it would take approximately 3,700 acres to reach the current $11.58 million estate tax exemption.

Based on the most recent Census of Agriculture, more than 74,000 family farmers and ranchers were operating 2,000 or more acres in 2017, suggesting approximately 3.6 percent of the more than two million family farms and ranches could potentially have assets exceeding the estate tax exemption. 

These 74,000 farms and ranches operate more than 449 million acres, indicating nearly 50 percent of the farm and ranch lands in the U.S. could face increased liquidation pressure upon the transfer of assets at death.

Studies show, on average, 15 percent of total farm assets come from assets other than land. Machinery and livestock are top of the list, and on good years, the livestock value on ranches would be a lot higher.

Farm land values in Iowa or Illinois can be over $10,000 an acre. The same applies to a ranch in the West with ample water rights on certain river systems or with scenic or recreational values. The land values just keep going up.

An estate tax has never been a friend of agriculture or the families involved. The scary part is more and more legislators in Congress want it higher, except on election years, of course. The estate tax should just be eliminated. There should be no such tax, period.