AlB—Lancaster Farming, Saturday, February 6,1982 What do the new rules WASHINGTON, D.C. The new year ushered in something really new: the rules on Federal estate and gift taxes. The provisions, which are part of the Economic Recovery Tax Act of 1981, contain many changes of interest to far mers, according to USDA’s Economic Research Service. One sweeping change is in the marital deduction. Before the new law, there was a ceiling on gifts and bequests you could make to your spouse without incurring tax. The marital deduction for bequests was limited to 5250,000 or half the adjusted gross estate, whichever was greater. The marital deduction for gifts was limited to $lOO,OOO plus SO percent of the value in excess of $200,000. The new law allows unlimited marital transfers without tax. That is, you can give or will your spouse any amount without paying gift or estate taxes. In addition, the rules on property held jointly by a husband and wife are now different. In the past, the total value of such property was included in the estate of the first spouse to die, unless the surviving spouse could prove that he or she had paid for part of the property or had materially participated in the operation of the farm. Now, however, half of jomt property is assumed to belong to the surviving spouse, regardless of the amount each contributed to the purchase of the property. So, when one spouse dies, only half of the property is included in that spouse’s gross estate and is thus potentially subject to estate tax. Unified Credit Will Allow $600,000 In Tax-Free Gifts and Bequests Besides allowing unlimited property transfers to your spouse, the new tax act substantially in creases the “unified credit” (so called because it can be applied n The windrow is swept clean by 90 spring fingers and fed con tinuously by the 5 bar finger pickup through the wide ‘'open throat" inlet into a cylindrical bale chamber Compare our features on these versatile performers. Model 1578 Model 875 $11,294 $10,168 Up to 1800 lb. bales Up to 950 lb. bales 6’xs'. s’x4’ Up to 20 bales per hour Up to 25 bales per hour • Bale density - twice as dense as center • Narrow belt spacing - short, closely spaced, independent run ning belts on both baler models cut maintenance calls and ser vice calls at harvest time. • The 5’ wide flotation pick-up and the only true "Open-throat” feed inlet enables pick-up of corn stover, peanut straw or any other residue crop without plugging. ' For more information contact Bill August C.A. McDade Co. 717-243-2442 against both the gift tax and the estate tax). The unified credit establishes the amount you can will and/or give to recipients other than your spouse, free of estate and gift taxes. Formerly, the unified credit was $47,000. This meant that you could give or will about $175,000 worth of property tax-exempt, because the credit canceled out the gift/estate tax due on that amount. The new law increases the unified credit and so the tax-free amount each year through 1987. For 1982, the tax-free total is $223,000. By 1987, it will be $600,000. Annual (lift Tax Exclusion Raised Prior to 1982, you could give away a maximum of $3,000 per recipient per year without in curring gift tax and without using up any of your tax-free total under the unified credit. Now, the maximum has been raised to $lO,OOO per recipient per year. (The exclusion does not apply, though, to gifts of future interests m property.) So, for example, you and your spouse together could now give each of your children $20,000 in farm property annually, free of gift taxes. And, as in the past, these gifts do not count against the amount that you can transfer tax free because of the unified credit. Installment Payment Rules Liberalized Past tax laws allowed estates consisting mainly of farms or other closely held businesses to pay estate taxes m installments. The new law broadens the conditions for installment treatment and extends the most favorable terms to more farm heirs. In the past, a farm might qualify tor installment treatment of estate taxes if it met either of two sets of conditions, the first more favorable than the second. Remember, if you don't see the "STAR", It hasn't been McKee'd! f' * MCKEE gt The smooth unob strucfed flow of a * aa **- . * he k , out material continues to be Slde the bale is fed and tumbled loosely P/ ess « d '" ward (oward ? in the constant volume * he °° re ,orn ’ in B a high chamber, gradually density outer layer This compacting into a senes compaction from the o) | a r, ers outside in produces the soft "star" centre with a tight ' weather-proof shell lor maximum storability in all weather conditions on estate taxes mean lor farmers? (1) If the farm constituted more than '65 percent of the decedent’s adjusted gross estate (the gross estate minus certain expenses, debts, taxes, and losses), the estate was allowed to pay only interest for 5 years. Then, the tax due could be paid in 10 equal an nual installments thus spreading payment over a total ot IS years. Interest charged was 4 percent of taxes due on the first $1 * million of the farm’s value and a! higher rate (periodically set by the Secretary of the Treasury) on the rest. But if a third or more of the farm was disposed of before the 15 years were up, all remaining taxes and interest -came due im mediately—even if the farm was “disposed of” by the original heir’s dying and passing it on to another family member. (2) If the farm constituted more than 35 percent of the decedent’s gross estate (or more than 50 percent of the decedent’s taxable estate), the estate tax on it could be paid in 2 to 10 equal yearly in stallments. But there Was no 5- year deferment period before installments had to begin, and the higher rate of interest was charged on the entire amount of tax owed. If halt or more ot the farm was disposed ot, even because ot death of an heir, all taxes and interest came due immediately. For the estate of a person dying in 1902 or after, the new tax act abolishes the second category, the 10-year treatment. Any farm that constitutes more than 35 percent ot an adjusted gross estate is now eligible for the 15-year, two-level interest treatment. To lose the installment privilege, at least halt (rather than a third) of the farm must be disposed of during the period. And, if an heir dies during the 15-year period and the farm passes to yet another family member, the original decedent’s FARMER BOY AG INC. BEACON STEEL PRODUCTS Adult T urkey Feeder Broiler Pan Feeding System FARMER BOY AG. 457 E. MAIN AVE. MYERSTOWN, PA. 1 7067 BEST IN DESIGN, PRICE AND EXPERIENCE estate still keeps its installment- jg the average annual cash payment right. rental per acre, or the average Special Use " annual net share rental per acre Valuation Rules Changed f or comparable farmland in the In 1976, Congress enacted to a locality of the decedent’s farm; low to value a farm, for estate tax "X” is the average annual state purposes, according to its use and local real estate taxes, per rather than its fair market value, acre, for comparable land; and The change was made because >‘r” is the average annual ef many farmers feared that their fective interest rate for new land’s appreciation would result m Federal Land Bank loans in that estate taxes out of line with the locality. land’s income-producing potential. For all three variables, you take The special use valuation law has the annual average of the 5 most been refined further under the recent calendar years ended Economic Recovery Tax Act. before the the date on which the The changes are too numerous to decedent died, cover entirely here, but here are Maximum Reduction from details on three of the most im- Fair Market Value portant... Is Now *790,000 Share Rente Now Qualify For From 1976 through 1980, *500,000 Use In The Cashßent Formula was the maximum amount by The Internal Revenue Code which you could reduce a farm’s specifies that one of two formulas f alr market value through special has to be used to determine a valuation. The new tax act farm’s special use value. The first raises that amount in yearly m formula (given opposite) is more crements. For the estate "of a favorable to the estate Ilian the person who died in 1981, the second, which tends to produce a maximum is *600,000. For the higher special use value and so a es tate of a person dying in 1982, the higher tax. But in the past, to use imut will be *700,000; in 1983 and the first formula, you had to Be after, *750,000. able to factor m cash rentals for Recapture Period Shortened comparable farmland in the For the estate of a person who locality of the decedent’s farm, died before 1982, there was a 15- Farms in areas where shate year recapture period for taxes rentals were the rule had to be saved becasue of special use valued according to the second, valuation. That is, during the 15 ' less favorable formula. years after a decedent’s death, if But the new law changes that an heir failed to meet the special situation. For the estate ot a use requirements, the IRS could person who dies after 1981, you can recapture some or all of the tax now use “net share rental” to savings obtained through special value the farm, if there is no use valuation. This rule still ap comparable land trom which the . plies to estates of those who died in gross cash rental can be deter- 1981 or before, mined. The next share rental is the But, for estates of persons dying value 'of the produce received a fter 1981, the Economic Recovery by’the farm owner, minus the cash xax Act shortens the recapture operating expenses incurred for period to 10 years. It also allows an growing the 1 produce and paid by heir 2 years’grace, from the death the owner - again, on comparable 0 f the decedent, to begin using the farmland in your And, you farm tor farming. And it makes the factor the figure into this formula. 2-year grace period retroactive to Value of decedent’s farmland, per estates ol farm owners who died acre =R - T/r. a f te r 1976. 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