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Tue Dec 18, 2012, 07:27 AM

$1,000,000 Exemption and 55% Does Kick Family Farms in Gut

We call it ‘farmer rich’ around here. You have several million in net worth but don’t have enough in your bank account to pay your electric bill.

I know on our ranch that was purchased by my grandfather in the early 1900’s, we would owe significantly more in estate taxes what he originally paid for the place. The land was worth only about $1,200/acre as recently as the 90s (the rate that we’re evidently going back to) but the general land boom since then and the Eagle Ford Shale boom (we’re just north of the actual shale but the equipment yards have run the prices up to $10,000/acre next door) now would put the price near $5,000 acre for reasons that absolutely nothing to do with its productive capacity.

That’s south Texas. Go to where real crops are raised in bulk and land prices are high just because of agriculture. Any farm large enough to support a family is going to be subject to taxes that would put just about any family farm under.

I'm not whining about the tax, I realize how lucky I was to be born into a family where I got to experience growing up on a farm and that nothing is guaranteed.

Just realize that one of the secondary impacts of a $1,000,000 exemption and 55% estate rate would have on family farms is they’re going to be sold to corporations. This isn’t some scare tactic, it’s just the reality of how the economics of family farms works.

For us, it wouldn’t mean a corporate take over, it’d likely just mean we sell out to a developer that would cut up equipment yards for the Eagle Ford Shale boom.

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Reply $1,000,000 Exemption and 55% Does Kick Family Farms in Gut (Original post)
ag_dude Dec 2012 OP
graham4anything Dec 2012 #1
ag_dude Dec 2012 #4
mainer Dec 2012 #2
safeinOhio Dec 2012 #3
ag_dude Dec 2012 #5
safeinOhio Dec 2012 #8
ag_dude Dec 2012 #9
pnwmom Dec 2012 #16
newfie11 Dec 2012 #6
eridani Dec 2012 #7
graham4anything Dec 2012 #10
ag_dude Dec 2012 #11
graham4anything Dec 2012 #14
ag_dude Dec 2012 #15
graham4anything Dec 2012 #17
ag_dude Dec 2012 #21
graham4anything Dec 2012 #23
Downwinder Dec 2012 #12
HereSince1628 Dec 2012 #13
Ikonoklast Dec 2012 #18
ProgressiveProfessor Dec 2012 #20
ProgressiveProfessor Dec 2012 #19
SoCalDem Dec 2012 #22

Response to ag_dude (Original post)

Tue Dec 18, 2012, 07:41 AM

1. Taxes up to the late 1990s were alot higher than any are now, or are planned

 

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Response to graham4anything (Reply #1)

Tue Dec 18, 2012, 07:45 AM

4. What's your source for that?

I'm basing the $1,000,000 and 55$ on this morning's USA Today article regarding Obama's latest proposal...

Obama's proposal also would let estate taxes revert to 55 percent on estates after allowance for a $1 million exemption.


http://www.usatoday.com/story/news/politics/2012/12/17/new-obama-offer-fiscal-cliff/1776657/

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Response to ag_dude (Original post)

Tue Dec 18, 2012, 07:42 AM

2. I have a relative in that situation

Scraping by year to year as a dairy farmer in upstate NY, but working land that's worth over a million -- which he needs to grow feed corn. I know the farm won't be staying in the family once he passes, because no one can afford to pay the taxes. Family farms just don't generate enough income to make them worthwhile keeping as small farms. A number of his neighbors are selling out to fracking companies because they have no choice.

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Response to ag_dude (Original post)

Tue Dec 18, 2012, 07:43 AM

3. I find it really hard to feel all that bad for

land rich, dollar poor farm families.

Sell a few acres to keep most. Some of the kids will sell all of theirs and never farm again. The others will still get many millions from ma and pa. Mostly those that didn't spend a few dollars on a good lawyer to set up a trust. The Farm Bureau had a very hard time finding any farms that had to sell the land to pay off the taxes. Last count, less than 50 in whole country. In the spirit of your parents, start with a smaller ranch and your success will be measured against how your father grew his ranch with hard work.

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Response to safeinOhio (Reply #3)

Tue Dec 18, 2012, 07:51 AM

5. The study you are referring to

was not done under the $1,000,000/55% rate and is irrelevant to a discussion on that rate.

Things are MUCH different today than they were when the vast vast majority of family farms were started. Land was much cheaper then and agriculture was of the nature where smaller operations were able to stay afloat. The difference in farming techniques and land prices in today's world prevent any 'family farm' in the traditional sense from starting up. Well funded corporate farming? Sure.

As I said, I know how lucky I was to grow up with it and I'm thankful for that time. While I do find it odd that you think land our family has worked our asses off maintaining for over a century should be taken away and sold the developers because you don't think it should belong to us, you are not alone in that opinion.

Those such as yourself either already know or should accept that their position is going to push agriculture further and further down the path of industrialized production.

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Response to ag_dude (Reply #5)

Tue Dec 18, 2012, 08:14 AM

8. I do feel sorry for those that wish

To keep farming, but the facts are that over half of the kids will not wish to farm and they will also get to keep the wealth. I'd be all for deferring the tax until the land IS sold or not farmed by the hiers.

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Response to safeinOhio (Reply #8)

Tue Dec 18, 2012, 08:20 AM

9. The taxing when the land is sold

does make a ton of sense. Just add the estate tax to the capital gains that will be charged at the time of the sale.

I don't feel sorry for those that leave the farm and then have to pay estate taxes either. That's what estate taxes are for.

My issue with the currently proposed cap is the way that it will impact hard working family farmers that just want to maintain the farm.

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Response to safeinOhio (Reply #3)

Tue Dec 18, 2012, 12:18 PM

16. A small farm or ranch in most places isn't worth many millions.

Corporate farms, yes; small, family farms, no. But they have a tax problem if the property is worth more than one million.

No one wants to buy a few acres of ranch or farmland, even if somehow zoning allowed it. It doesn't work that way.

And a trust won't do anything to reduce the taxes due.


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Response to ag_dude (Original post)

Tue Dec 18, 2012, 07:58 AM

6. As a farm owner in Nebraska

I want to thank you for posting this.

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Response to ag_dude (Original post)

Tue Dec 18, 2012, 08:08 AM

7. How about shared ownership before the land ever becomes part of an estate? n/t

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Response to ag_dude (Original post)

Tue Dec 18, 2012, 08:31 AM

10. Isn't it based on profits anyhow?

 

and doesn't the income get offset by expenses?

and the first such and such is at the low rate
then it gets higher
but its on profits, not net

it's like them saying about small biz, and in reality, they are referring to Donald Trump

and all biz has taxes and all go up

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Response to graham4anything (Reply #10)

Tue Dec 18, 2012, 08:36 AM

11. No, it's not.

The price of land in estate calculations is based on the fair market value of the land. They don't use the ag-exemption price, they use the open market price.

Where did the idea that farms are taxed based on profit come from? You've posted two things now that are just flat out not true. I'm not questioning your integrity, just the source of the information.

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Response to ag_dude (Reply #11)

Tue Dec 18, 2012, 12:09 PM

14. then its totally different than any other biz?

 

You can't write off any expenses?

besides, they can write a rider to it for farms anyhow

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Response to graham4anything (Reply #14)

Tue Dec 18, 2012, 12:16 PM

15. Yes, you can write off expenses....

...that has nothing to do with estate taxes.

Regarding estate taxes, the land is taxed just like a regular business is taxed for land/property.

The difference is, in the case of family farms, the net worth of the land is insanely high because it was purchased many decades ago. Land prices in general have gone up dramatically during that time period while the productive capability of the land has not. That's not added income, it's just added paper value on land that they have absolutely no intention of ever selling.

What that results in is just the estate taxes that will be several times more than what the land was originally sold for while the amount the land makes is still low. Small family farms struggle as it is and having six and seven figure tax liabilities when you didn't have a six or seven figure gain put them under.

That results in the land being sold off, either to somebody who is truly wealthy (not farmer rich/land poor), a developer, or to large scale corporate farming.

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Response to ag_dude (Reply #15)

Tue Dec 18, 2012, 12:33 PM

17. Then instead of an estate, give some away to family and it lowers the value

 

Sell 10-20% and bring in money and then it sort of doubles as it lowers the value of the entire farm anyhow.

It seems like wanting it both ways

Land prices soared, so the value is worth alot more.

Never say never on selling a part or more. If the price is right, why not?

Or perhaps a rental building on part of the property.

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Response to graham4anything (Reply #17)

Tue Dec 18, 2012, 12:41 PM

21. I'm not sure you actually understand the idea of family farms.

Yes, you can sell them off to developers.

I've been saying that since my first post.

Again, who are you to tell a family that has been a good steward of land for over a century that they need to give that land away to the government?

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Response to ag_dude (Reply #21)

Tue Dec 18, 2012, 01:02 PM

23. Who says to give it away??? Subdivide it, give a piece to family or friend or sell it

 

Some seem to want to have a higher value land, but not have it taxed higher

All property value goes up.Would they want it to decrease?

and in every tax change, someone has an advantage and someone a disadvantage

Like with health care
I pay $3000 a month as I am self employed family and don't have a business org. giving me cheapie or free insurance. Then those people are whining theirs may go up $50.00 a month,
well excuse me for thinking theirs should be tax free and cheap forever while others are 15times as much as theirs
(and they don't even pay taxes on that free benefit they are getting.)

If the value is sky high, then selling a parcel of it to bring in the added money and have a profit at end of day seems doable. IMHO

though it seems like no conversation actually was wanted was it?

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Response to ag_dude (Original post)

Tue Dec 18, 2012, 09:00 AM

12. Used to be called land poor.

As usual the farmer is at the mercy of the financial class. The local tax structures are based on property tax but the only property they tax is real property. Intellectual property and securities are exempt. The plumber pays tax on the tools of his trade, but the lawyer and the banker get off.

Estate tax was one of the major reasons Robert Mondavi gave for incorporating, the other was availability of capital. Foundations are an alternative as are donations reserving the grazing rights.

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Response to ag_dude (Original post)

Tue Dec 18, 2012, 09:02 AM

13. Doesn't incorporation provide a work-around for inheritance?

just wondering.

Seems like every family farm around here is incorporated to limit liability and protect it's continuity over generations.

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Response to HereSince1628 (Reply #13)

Tue Dec 18, 2012, 12:34 PM

18. I was thinking the same thing, would forming an 'S' Chapter corporation with the heirs as

stockholders help alleviate or be a workaround the estate tax?

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Response to HereSince1628 (Reply #13)

Tue Dec 18, 2012, 12:40 PM

20. Sort of...

You place the property in a corporate name. You buy/sell/transfer the corporation. Properly done it does not cause a reassessment an can avoid inheritance taxes. I am going through that now

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Response to ag_dude (Original post)

Tue Dec 18, 2012, 12:38 PM

19. This is one of the reasons Prop 13 is so beloved in California

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Response to ag_dude (Original post)

Tue Dec 18, 2012, 12:54 PM

22. Estate taxes are necessary. Transfer of property to heirs is money they did not earn

and farmers (multi generational) have usually spent years getting (or at least being eligible) for subsidies (whether they availed themselves or not)

It's math.

example:
Family farms are different from what they used to be. Until recently farm families were large and many sons stayed on the family farm, adding houses as they married & raised their families.

Since the 60s & 70s more of these kids have been going to college & moving away from farming. As the elders die off, their progeny has to "spilt the pie", not many of them want to farm and probably most of the heirs want the money..It should be taxable since the asset has greatly increased in value.

Estate taxes are necessary unless we want to return to feudalism, where vast wealth only increases at the top and is kept within "family", free of taxes so it only grows..

Most sell to developers anyway...taxes or no taxes.. they want the money..not the sun-up to sun-down chores & heartaches of farming.

..

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