11-19-2012 07:35 AM
Good morning and happy Turkey Day week....
All off to a green start this morning.
Lots of things to worry about on the horizon. Entitlements, Gaza and Israel, Budget Crisis, Europe and so on. White House rhetoric has got the stock market up this morning.
This tends to be a funny week. We are up across the board on demand stories doing the rounds. Recent sell offs have apparently attracted buyers.
I am speaking about estate taxes a little later on Fox Business today. This is going to be a big issue to farmers as land prices have risen considerably. Currently, the tax kicks in on estates worth $5 million or more at 35%. Next year the threshold drops to $1 million and the tax is 55%. The president has proposed a threshold of $3.5 million and a rate of 45%. Who will do the farming when the government taxes farmers out of business?
11-19-2012 08:07 AM
A bunch of ground around here were bought years ago with section 1031 exchanges. some sold 1 acre by Omaha and bought 7 -9 acres and tax was delayed on the gain, with the right tax advisor, very little tax will have to be paid. Using the section 179 and updating equipment, very little tax has had to been paid. what a great time to be a farmer. So. some tax will have to be paid when I die, why shouldn't there be, still get to live in the greatest country ever.
11-19-2012 08:18 AM
In all my years of farming I have never seen a time when there wasn't way more guys wanting ground to farm than farms that where available. I can't ever see that we run out of farmers, especially if there is 50 cents to be made, or if a loss, a hope that next year will be better.
A farmer is only paying tax on the part that increased over the original purchased price. Like taxing the profits on a stock trade. While I think 1 million/55% is extreme(though wouldn't most stock traders love that exemption), I am not sure how you keep it from being a land of a few land barons if you have no tax at all as some have talked about. I am not sure big inheritances are good for many people. Some of these same people than complain about this law and can give their kids 60,000 a year (30,000 from each spouse to each child) tax free, and they won't do it. And then they turn around and complain about the tax. On the flip side, that tax money to the government just goes down a rat hole.
11-19-2012 08:34 AM
I think that most folks would agree that we don't want land barons. The estate tax is an old tax that the English thought up and it has not really done its job over there.
I just think that there is something wrong with paying tax on money that has already had tax paid on it. Easy target.
11-19-2012 10:03 AM
What are the chances that the threshold will be $1 million and the tax rate 55% by say Feb. 1, 2013? I actually find the presidents proposed threshold of 3.5 million much better than 1 $Million.
11-19-2012 10:28 AM
It would be one thing in NE if it was just the real estate taxes which are getting out of hand, but here we have to pay an occupation tax as well. Right now, the cap is at ten bucks an acre on the occupations tax. However, there is a bill that will be introduced shortly that takes that cap from ten up to twenty. It won't be long before our combined taxes of real estate and occupation are higher than what normal cash rents were just a decade ago. When commidity prices fall around here, I can see a time when a lot of real estate will be sold because the outside investors won't be able to get much of any return on their investment after the taxes are taken out.
11-19-2012 04:06 PM
" I just think that there is something wrong with paying tax on money that has already had tax paid on it. Easy target." Estate taxes are not on principle paid and taxed, but on the appreciation of land above purchase price for which no taxes are payed until it passes to heirs. So only taxed once. And there are ways to avoid the tax.
11-19-2012 05:08 PM - edited 11-19-2012 05:12 PM
You're smarter than that. I have one 120 acre tract that was bought for $900 per acre. I bought it on contract and was able to deduct the interest during the life of the loan. I was able to depreciate existing tile and fences on my 1040 until they were depreciated out.
The land now is worth from $9K or more depending how frisky my neighbors are. Across the fence to the south an 80 sold for 8600 last fall.
The gain on that tract alone would be $962 k which hasn't been taxed one dollar over the 25 years I have owned it and that is just one farm. cap gains at 15% would be 144k on that one farm alone.
Nobody is in favor of a $1 million exemption at this point in time but $10 million for a couple is a bit excessive.
Farmers have the advantage when buying land in that it is like a giant Ira in that it produces gains with out the burden of taxes until you sell it or die. Postponing taxation is almost as generous as a forgiving them. #0or 40 years of postponement is quite a gift. Do you suppose Joe Six pak would like to postpone his federal taxes for 40 years. What could he do with that interest free cash laying around?
Estate tax doesn't put farmers out of business. Death does and the most onerous damage is property division. More farm operations are liquidated to satisfy asset division than are ever liquidated by estate taxes.
Hopefully they can negotiate a reasonable exemption rate for estate taxes. However neither farmers or investors should expect their good fortune to go untaxed. If the poor slob on the assembly line can pay taxes. So Can I.
BTw my heirs do not deserve to start off in the circumstances that my wife and I enjoy when we quit. We didn't start off with a small fortune and neither should they expect to. If they want to retain title to our realestate, they can borrow a few dollars to pay the tax and pay it off over time like we did. So many young people think they should get it all free and clear and never struggle again. Some even to the point that they don't think their off farm siblings should get a share!
Besides so many of our fellow farmers think they are tax abused when they never had it so good!