By KEVIN WALKER
Michigan Correspondent
 
WASHINGTON, D.C. — President Obama signed legislation earlier this month that will, among other things, provide relief to farm families who would otherwise be affected by the estate tax.

The bill, called Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, was signed into law Dec. 17. It extends what are commonly referred to Bush tax cuts. Without an estate tax deal, the exemption – or exclusion amount for those inheriting an estate – would have reverted to $1 million and a 55 percent tax rate starting Jan. 1, 2011.

The bill raises the exemption amount to $5 million per spouse and lowers the tax rate on estates exceeding the exemption amount to 35 percent. Last year there was no estate tax. From 2001-09 the exemption for estates increased incrementally from $675,000 to $3.5 million.

“This is real money that’s going to make a real difference in people’s lives,” Obama said at the signing ceremony. “And I would not have signed this bill if it didn’t include other extensions of relief that were also set to expire – relief that’s going to help families cover the bills, parents raise their children, students pay for college and business owners to take the reins of the recovery and propel this economy forward.”

Roger McEowen, director of Iowa State University’s Center for Agricultural Law and Taxation, was surprised to see an estate tax deal completed and signed into law in this lame-duck session of Congress.

“I did not think we would get an exemption of $5 million and 35 percent tax rate,” he said. “They got so beat up in the (Nov. 2) election; it put a lot of pressure on the White House to change their economic policy. With a $5 million exemption, it will help tremendously.”

According to McEowen, the statewide average valuation for agricultural land in Iowa is $5,000 an acre: “Getting an exemption of $5 million is a big deal, and the portability is really important.”

According to an article by estate tax lawyer Julie Garber, portability means that for a married couple, the exemption amount for each spouse can be “inherited” by the surviving spouse when one of them dies. Since the exemption amount for each spouse is $5 million under the latest tax deal, it would mean that a surviving spouse could potentially pass on an estate worth up to $10 million without their heirs incurring any estate tax. Without portability, the exemption limit would be $5 million.

It’s possible to make this kind of arrangement through estate planning without portability, but it can be expensive.

“To do a $10 million estate it’s easily $50,000” in attorney fees, McEowen said. Portability “simplifies the estate planning process for many people. The problem is this only lasts for two more years.”

McEowen added this guarantees these tax matters will become a political issue during the next election season.

Other provisions in the tax bill, of significance, include bonus depreciation and expense method depreciation. The bill specified that for qualified assets placed in service after Sept. 8, 2010-Dec. 31, 2011, 100 percent bonus depreciation is available.

In 2012, expense method depreciation for federal tax purposes would be set at $125,000, with the phase-out beginning at $500,000 of qualified property purchases for the year.

“These two depreciation provisions are really huge,” McEowen said.
Wins for biofuel blenders

Agricultural stakeholders are pretty pleased with other provisions in the tax bill worked out between Obama and Republicans. The American Soybean Assoc. (ASA) for example, hailed passage of the tax deal.

“Retroactive extension of the biodiesel tax credit through Dec. 31, 2011, represents a significant legislative achievement on a key ASA priority,” said new ASA President Alan Kemper, a soybean producer from Lafayette, Ind. “Soybean farmers greatly appreciate the work of Congress and the administration to get this legislation passed before the end of the year.

 “The estate tax would have eaten up the net worth of American farmers when someone passed. Now it can pass from generation to generation. Overall, we’re extremely pleased with the deal.”

The biodiesel blender’s tax credit amounts to $1 per gallon of biodiesel. The credit makes biodiesel more competitive with petroleum diesel fuel in the marketplace. According to the ASA, absent the credit, biodiesel becomes more expensive than regular diesel fuel.

The group claims that since the loss of the credit nearly a year ago, production of domestic biodiesel has decreased more than 35 percent from 2009. The credit helps to support domestic soybean prices.

Likewise, the National Corn Growers Assoc. (NCGA) was delighted with passage of the tax deal, which includes an extension of the ethanol blender’s credit, which was set to expire this weekend.

“We are very happy to see the one-year extension of the ethanol blender’s credit and a two-year reformed estate tax move,” said NCGA President Bart Schott, a corn producer in Kulm, N.D. “These extensions were among the top priorities for our organization in 2010. Failure to renew both would have done much to harm our nation’s rural economy and the future of America’s farms.”