“The tax package that is moving toward Senate debate contains several components critical for the long-term health of farms in our country,” says Jon Scholl, President of American Farmland Trust. “Land is often the farm or ranching family’s most valuable asset.”
The package before Congress would address a critical issue facing farmers and ranchers: estate tax. “With the bulk of a farm’s assets tied up in the land, barn, equipment, and more, you can imagine the stress on the family when an agricultural estate is disproportionately comprised of non-liquid assets,” adds Scholl. “Currently, when heirs face estate taxes, they are often forced to sell the farmland to cover the tax bill. To put this in perspective, I don’t think many of us today would have enough liquid assets to cover the 55 percent tax rate on estates valued over one million dollars.”
The Senate is considering making new estate tax provisions permanent that would exempt the first five million dollars of a farm estate, with a 35 percent tax rate thereafter. “This proposal will help protect farmland from unnecessary development,” Scholl adds. “It’s AFT’s hope, though, that at some point Congress will consider another bill as part of this tax package, too.”
Under a bill proposed by Senators Crapo (R-Idaho) and Feinstein (D-Calif.), and similar House legislation, farms, ranches and forest lands would be permanently exempt from estate taxes as long as the land remains in agriculture. If a family or estate chose to later sell the land out of production, the land would be subject to an estate tax, charged on the value of the land at the time of such a sale.
In addition to the estate tax issue, the tax package contains language to address the tax incentive for donating a conservation easement on agricultural property. “By allowing conservation easement donors to receive a larger tax deduction over a longer period (15 years), it helps give thousands of farm families a greater opportunity to protect their land. We know that since the incentive was first enacted, overall land protection efforts have increased by a third each year.
As proposed, the tax package would extend the incentive for donating a conservation easement for the 2010 and 2011 tax years. “Ideally, the Senate would move to make this tax incentive permanent,” Scholl says.
Enhanced tax incentives are an important tool to help landowners protect their farm and ranch land from development. First enacted in 2006, the tax deduction is given to landowners who donate a conservation easement on their farm or ranch land, with the enrolled property then permanently limited to agricultural or other compatible uses. Participating farmland remains in private ownership and on the tax rolls.
“America’s farmers and ranchers face tremendous pressure to stop production and sell their land. Federal taxes should not, and cannot, be a force that propels land out of agriculture,” concludes Scholl.