Keeping Texas Big,
Wide and Open
Created by landowners for landowners, TALT's mission is to protect private working lands, thus conserving Texas’ heritage of wide open spaces.
Photo © D.K. Langford
|Estate Tax Update|
Enhanced tax incentives for conservation easements
December 6th marked some progress for tax reform, and in particular for those interested in using a conservation easement as an estate planning tool. The extension of Bush-era tax cuts agreed to by President Obama did allow for some estate tax relief, including a short extension of a the enhanced conservation easement tax incentive for tax years 2010 and 2011, retroactive to January 1, 2010.
Like other tax provisions, including the estate tax, the enhanced incentives for conservation easements expired at the end of 2009. And as with the estate tax, which is by far the most controversial with many Democrats, it is still possible the incentives may be dropped from the legislation entirely. If they are, it would be a blow to efforts to protect Texas’ agricultural lands and wildlife habitats.
Federal Estate Tax Update
Estate taxes are one of the primary causes of fragmentation and loss of ag lands and native wildlife habitats. During his recent seminars for TALT in San Antonio and Fort Worth, noted tax expert Steve Small commented that, with an aging land ownership and 55% estate taxes, we will begin to lose agricultural lands at an accelerated rate.
Federal Estate Taxes – the Tax Reconciliation Act of 2001 provides that for the year 2010, the federal estate tax is eliminated for estates of decedents dying in 2010, and the tax basis of any assets transferred under those estates is changed from a “stepped –up” basis (meaning fair market value at the date of death) to a carryover basis. The Tax Reconciliation Act of 2001 provides that for the year 2011 and beyond, the federal estate tax would revert to the pre-2001 levels of a 55% top rate and an exclusion amount of $1 million (not indexed for inflation).
Federal Gift Taxes –even though the federal estate tax was officially repealed for 2010, currently the federal tax code gives you a lifetime gift tax exemption of $1 million that can be used to offset your taxable gifts, and exempts up to $13,000 per year in gifts made by any individual to any number of other individuals - this is referred to as the annual exclusion from gift taxes. Beginning in 2010, the gift tax rate will equal the highest individual income tax rate.
Generation Skipping Taxes - for 2010, the federal generation skipping transfer tax, or GST tax, was officially repealed. For persons who died during 2009, the tax applied to transfers of more than $3.5 million that “skipped” one or more generations. “Skip” refers to either a transfer that was made to a relative who was two or more generations below your generation (for example, a grandparent to a grandchild), or to a non-relative who was more than 37 ½ years younger than you. Current law provides that the GST tax will come back in 2011 with an exemption of only $1 million that will be indexed for inflation in 2012 and beyond.
Bills Pending in Congress
As of 10-9-10
The Feinstein/Crapo bill also includes an expanded exclusion from estate tax for easement donors, increasing the IRC 2031(c) exclusion to 50% of the value of the protected land, and increasing the cap on that exclusion from $500,000 to $5 million.
Salazar Bill (HR 173) – introduced in January, 2009 by California Rep. John T. Salazar, this bill would amend the Internal Revenue Code to exclude from the gross estate of a decedent the value of farm or ranchland used by an heir of the decedent for farming purposes, with a condition that with respect to each of 3 or more of the 5 consecutive taxable years ending with the decedent's last taxable year, the decedent's gross income from farming or ranching exceeds 50 percent of the decedent's gross income. This bill would also impose a recapture tax on an heir who disposes of such farmland after the decedent's death or who ceases to use it for farming purposes.
American Family Farm and Ranchland Protection Act (H.R.3050/ S.3640) –introduced in the House by Oregon rep. Earl Blumenauer and in the Senate by Col. Senator Mark Udall, this bill would amend the Internal Revenue Code to increase to $5 million the limitation on the estate tax exclusion for land subject to a qualified conservation easement and to increase the percentage of the value of such land that is excludable.
TALT gratefully acknowledges the assistance of Arthur Uhl, a partner with the San Antonio based Uhl, Fitzsimons and Jewett PLLC, in compiling this update. Additional information can be found through the Land Trust Alliance, http://www.landtrustalliance.org/policy/tax-matters/estate-tax-reform-and-land-conservation, and the National Cattlemen’s Beef Association, http://www.beefusa.org/uDocs/deathtaxleavebehind.pdf.