While not all principal farm operators are also the landowners, the average age of farm owners remains high. But, in a strange twist of fate, that might not be a bad thing for the future of America's farming industry, because it actually saves money to leave a farm as part of an estate than to pass it down to the next generation while still alive.
"The combination of state and federal taxes in effect on 2013 returns varies by state but can easily approach 30 percent or more in many locales, with California, New York, Oregon and Minnesota collecting the largest shares," Marcia Zarley Taylor reports for DTN The Progressive Farmer. "California's combined 33 percent top rate would be the third highest among industrialized countries," according to the Tax Foundation. (State-by-state tax rates on capital gains)
David Brown, a Des Moines attorney who specializes in certain tax-free exchanges, said that means in a state such as Iowa "taxes can easily whittle a $1 million farm gain down to $660,000," Taylor writes. "That's because there's a potential tax of 34 percent for income over $450,000."
"New capital gains rates apply for those with high adjusted gross incomes, but not necessarily high taxable incomes, others point out," Taylor writes. "For taxpayers who hit the new 39.6 percent marginal rate, the maximum capital gains rate is 20 percent (plus the new 3.8 percent Medicare surtax, if applicable), for a maximum 23.8 percent federal capital gains rate or almost 25 percent if the taxpayer has a large amount of itemized deductions. California's top rate adds another 13.3 percent to that burden." The result is that seniors are holding onto their land, knowing they can pass it on to their heirs with all past capital gains forgiven at death. (Read more)