Congress recently sent the biggest tax overhaul since 1986 to the President for his signature. And while there are many changes to the tax laws in the bill, an important one for farmers and ranchers has to do with the estate tax. While these changes to the estate tax will generally apply only to the largest of family farms and ranches, it wise to make sure you understand the changes and how they can impact your family’s farm.
What You Need to Know About Changes to the Federal Estate Tax:
- The new tax law temporarily doubles the exemption for the estate tax, gifts, and generation skipping taxes.
- The $5 million dollar base exemption set in 2011 has been doubled to $10 million, and is still indexed for inflation.
- Before the change, each individual had a $5.6 million dollar exemption in 2018. That exemption is now $11.2 million.
- Portability, another provision of federal estate law, allows couples to double that exemption with proper planning. Therefore a couple could exempt $22.4 million for 2018.
- The new exemption expires in 2025 without further congressional action.
- The annual exclusion amount an individual can give to any number of people without dipping into the lifetime gift tax exemption has not changed. After indexing for inflation, it will be $15,000 for 2018, up from $14,000 in 2017.
The Joint Committee on Taxation estimates that the number of taxable estates will drop to 1800 under the new law, from 5000 under the previous law. For comparison, in 2000 when the exemption was $675,000, 52,000 estates paid tax.
So while these new tax changes, apply only to a very small percentage of family farms and ranches, it is prudent to check with your tax professional to understand how these and other farm related tax changes affect your family business.
At AgriLegacy, our purpose is to provide information to help keep the farm in the family. For more information, please contact us anytime.