An increased exemption and lowered rate of the federal estate tax passed by Congress last month is welcome news to farmers.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, passed by Congress and signed by President Barack Obama Dec. 17, provides for a $5 million exemption and top rate of 35 percent on the taxable estate of a deceased person in 2011 and 2012, compared with the prior $3.5 million and 45 percent respectively.
The estate tax has been of particular concern in the agricultural community, said Sasha Farkas, of Sonora, the California Farm Bureau Federation director representing Tuolumne and Stanislaus counties.
“ Think about how it would affect an almond grower whose land is valued at $12,500 an acre and they have 200 acres and then they have a shop, a house or two, a couple of tractors, sprayers, harvesting equipment, tools,” Farkas said. “That would add up to $3.5 million pretty quick. Or maybe a cattle family up here that has a thousand acres of dryland with barns, corrals, house, tractors. That adds up quick, too.”
The problem is that such land-intensive farming endeavors as almond growing and cattle farming means a lot of real estate with a value that adds up quicker in the Golden State than almost any other in the Union, according to Farkas and Michael David Fischer, the CFBF director representing Calaveras and San Joaquin counties.
Fischer, a 20-year cattle farmer from Valley Springs, said he has gone to Washington, D.C. and had fruitful discussions with Congressmen Dan Lungren and George Radanovich as well as U.S. Sen. Dianne Feinstein to try and ease some of the burden the tax has on California farmers.
The estate tax comes on top of capital gains taxes, Fischer said, and makes it even more difficult to pass on a family farm in an era when younger generations are less and less inclined to continue such a business.
“It’s not a real lucrative business,” Fischer said, adding that he has to have additional work to supplement his cattle ranching income. “When you die, they tax you again. It just doesn’t seem right.”
If land alone does not put a cattleman near the estate tax exemption limit, he said, equipment like the assets Farkas mentioned can do the trick. Fischer rents the approximately 5,000 acres his cattle graze upon, but he has seen neighbors sell their land at about $10,000 an acre and incur tax penalties. He said a pickup truck valued at $50,000 to $60,000, a $10,000 to $20,000 trailer, cattle chutes, horses and fencing can make it “not too hard to get up into the millions of dollars pretty fast.”
Fischer used to run cattle up in the Stanislaus National Forest which he said will mean cycling through more pickups faster with the mileage factored in.
CFBF has co-sponsored legislation by Feinstein and Napa Congressman Mike Thompson that would defer estate taxes on family farm property as long as the farm remains in operation and stays in the family. Such efforts eye a horizon just two years down the road when the new estate tax rates and deductions could be replaced by less farm-friendly legislation.
“The tax package gives farm and ranch families two more years of certainty, but they still need a longer-term solution,” said CFBF President Paul Wenger in a bureau news release.