No. of Recommendations: 20
If there is a tax on farmland at death and the land has significantly appreciated, then a portion of the farm, equipment and buildings may have to be sold to pay the tax. I think this would have a tendency to ruin the business.
I'm not sure why you singled out farmland, as this is true about any illiquid asset. Kid inherits a $100 million Picasso or a $50 million mansion or the family's ownership of 5 local pizza shops and is forced to sell to pay the tax? I don't know, I'm not feeling particularly sympathetic.
But what's especially curious about singling out farmers is (a) how infrequently they face the estate tax (0.3% of farm estates is the most recent data I can find), and (b) the special benefits afforded to farms in terms of the estate tax. In particular:
"In the interests of avoiding that situation [i.e., inheritors being forced to liquidate their farms] and promoting the continuation of family farm operations from one generation to another, Internal Revenue Code (IRC) Section 2032(a) offers estates an alternative special land use valuation for farmland which may result in either a lower tax liability or no liability at all. Under the alternative valuation of Section 2032(a), the value of qualifying farmland is determined based on the net five-year average annual cash rental value of comparable farmland in the same vicinity, after reduction for state and local real estate taxes, capitalized by the average annual effective interest rate applicable to new Federal Land Bank loans. While the application of the formula can be complicated, the net result is that the decedent’s farmland is valued as farmland, and not necessarily at its fair market value. Since farmland values tend to be lower than fair market values, application of the Section 2032(a) alternative valuation may result in lower estate values, and in turn, result in a lower tax liability." (from
https://www.girvinlaw.com/how-farm-land-is-affecte...)
