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Readers Rank Estate Tax Provisions

According to the American Farm Bureau Federation (AFBF), farmers and ranchers are parti-cularly sensitive to the estate tax for several reasons.

“First, farm operations typically require substantially more in capital assets to generate $1 in income than other sectors of the economy,” said the group. In addition, the typical farm estate has more capital tied up in fixed assets that are difficult to liquidate.

“Replacing the estate tax with an inheritance tax or other tax due when a business owner dies will do little to resolve the issues that plague farmers and ranchers under the current death tax regime,” said AFBF.

AFBF reiterated its commitment to permanent repeal of estate taxes, but urged Congress to make several immediate changes. Among them: the estate exemption should be increased to $10 million per person and indexed for inflation; there should be full stepped-up basis for inherited assets; the gift tax exemption should be increased to $20,000 and indexed for inflation; and special use valuation adjustments for property should be unlimited.

In May, we asked our readers which of the above immediate changes they thought would be most helpful to them. Sixty-four percent say increasing the exemption to $10 million a person and indexing it to inflation, while 18 percent want to maintain the full stepped-up basis. Ten percent like no limits on special use valuation adjustments for property, and eight percent say increase the gift tax exemption and index it.

The importance of the stepped-up basis provision is that when the survivors inherit the land, they have the ability to re-set the basis at current market value. This means that any depreciable assets that are on the farm, such as irrigation equipment, buildings, improvements, etc., can be re-depreciated at full market value of what they are today.

In some of the original proposals for eliminating the estate tax, the stepped-up basis was lost. One thing to remember is that this is a very beneficial provision that helps people who inherit farm land and who want to keep farming to be able to keep farming and get the tax benefits of the re-depreciation of certain assets.

It’s interesting that 82 percent of the respondents chose one of the two first options. Steve Verett, executive vice president of Plains Cotton Growers Association, agrees with them.

When asked his opinion on this topic, Verett said, “I would like to see a more generous exemption, something in that $10 million per person range and indexing it to inflation so that the exemption can keep up. But, I also would like to maintain the stepped-up basis provision.”

Following is a sampling of the comments from other readers who voted in the May Web Poll. As always, we do appreciate the feedback.

• “I wish someone would point out that only 14 percent of the so called ‘Farm Bill’ goes to farming. A more appropriate name would be ‘The Food Stamp Bill’ or the ‘Entitlements Bill.’ A $5 million exemption on estate taxes would protect almost all farmers. The stepped-up basis is a more important option to me.”

• “As a farmer who supports his farming habit with an accounting practice, I believe that no limits on special use valuation would be best for farmers. However, there are many farmers who have a full or part-time business just to keep farming, and the $10 million per person exemption would cover everyone. Using full stepped-up basis gives the IRS too much room for challenges to the valuation. This is a very complex problem, both for individuals and the government.”

To participate in this month’s Web Poll, go online at www.cottonfarming.com. The results of the July poll will be reported in the Cotton Farming September issue.

Web Poll Results

In May, we asked: Until estate taxes are permanently repealed, which would be the most helpful to farmers and why?

• Increase exemption to $10 million a person; index it to inflation — 64 %
• Maintain full stepped-up basis — 18 %
• Increase gift tax exemption to $20,000 and index it — 8 %
• No limits on the amount that property values can be adjusted under IRS code section 2032A special use valuation — 10 %

July Web Poll Question

So far this season, have you noticed a significant savings by using tankmixes? In the comments section, please identify your area and explain why or why not.

(1) Yes
(2) No

Register your vote at www.cottonfarming.com

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