Tax laws

One of Saratoga County’s Largest Farms at Risk Due to Tax Laws


[ad_1]

CHARLTON – Dave Wood is in a tight spot of $ 5 million.

He is 79 years old and does not yet have a family member to bequeath his farm to upon his death.

He’s not the only one: According to a 2020 USDA report, two-thirds of family farmers nationwide who plan to retire in the next five years don’t think they’ll be able to pass their farm on to a relative .

Wood’s daughters have their own careers and a grandson is in college. Another is too young for career plans. But Wood has two longtime employees who want to take over Eildon Tweed Farm. But federal tax policies do not give them the same protections as a family member. Unless he finds alternatives, his successors may have to sell half the land and cows just to pay the federal tax bill, which could reach $ 5 million.

Losing half of the assets would make the farm unprofitable and leave hundreds of acres of farmland open for future development.

Wood’s farm is one of the largest in Saratoga County, according to county records. He cultivates 3,300 to 3,500 acres to support his dairy, which he says produces 120,000 pounds of milk per day. Most of the land he uses to grow corn and grass is rented out to other farmers, who anxiously watch if he can solve his inheritance problem and save his farm.


“I think about it a lot,” he said. “This winter we spent a lot of time on it. There is simply no easy solution.

The lumber started with two calves and 60 acres in 1970 and has grown to what it is today.

The first 60 acres came from his in-laws.

“It was a good start, but I had no money,” he said.

He was busy working full time, supporting his wife through her studies and raising their first daughter, but the earth was beckoning him.

“We had this farm there,” he said. “You might as well stay busy. How else are you going to find a place?

So he bought two calves, raised them, sold them, and used the money to buy more. Fifteen years later he bought most of the land he now owns from another farmer who wanted to retire.

“They sold their land a little cheaper, just to make sure I did,” he said.

He is ready to do the same. He has two long-time employees who want to take over when he dies, but neither has the money to pay taxes on what is now a significantly larger operation.

One of them, Kevin Scripter, has worked for Wood for 20 years.

“I love what I do. I’ve been doing it since I was a kid,” he said as he recently repaired a tractor on the farm. “I like to grow things. I like to harvest, I like to see the end result. We try to improve it every year.”

He tried to craft a partnership that would take over the farm when Wood died.

“We talk about it regularly. It’s not a simple thing, overnight,” he said.

The numbers are daunting.

The value of Wood’s farm is approximately $ 12 million, including land, barns, equipment and cows. It has more than 30 employees.

Currently, estate tax is 40% for anything over $ 11.7 million, so heirs could likely avoid it.

But after 2025, inheritance tax returns to its previous level of 40% for anything over $ 6 million. This could mean a tax of $ 2.4 million.

That’s not all. Successors must also pay a 20% capital gains tax, which would also be a tax of around $ 2.4 million.

And that number could double. President Joseph Biden has proposed to increase the capital gains tax to 39.6%.

There are certain exclusions in the two taxes for agricultural operations. But the only people who can use these exclusions are the direct family members who inherit the farm.

This can make further estate planning difficult. For example, the IRS normally assesses real estate at fair market value to calculate property taxes. But the undeveloped land in Saratoga County is worth far more now – due to population growth and housing development – than it is as a working farm. The IRS has a provision for this; if the owner operated the farm and passed it on to a family member, the property can be valued as a farm.

Likewise, Biden’s capital gains tax proposal would eliminate this tax on farms – if the farm remained in the family. There is no exclusion if the farm is entrusted to an unrelated farmer.

Estate planning attorney Megan Harris-Pero of Saratoga Springs, who works with local farmers, said tax policies would hurt more farmers than some lawmakers realize.

“I think it’s problematic to say we’re going to have this general rule, but we’re going to have an exception and all farmers will do just fine,” she said. “Within the farming family, it is hard enough to find an heir.

Money for taxes is also a common problem when helping with estate planning.

“Most of these farm businesses don’t have the money. They have land, they have equipment and they have loans, ”she said.

Wood is not opposed to paying taxes. But the value of the farm lies mainly in the land, tractors and dairy cows, not in cash.

“We are in a society where we have to pay taxes, but it has to be reasonable,” he said. “Buyers can’t afford to do this. They should sell it for cash.

Wood has said he will not agree to any deal involving the farm being broken up into pieces for sale.

“One solution would be to convince federal lawmakers not to force us into existence,” he said. “Taxes are a big chunk. Half the farm disappears like this. It’s just unacceptable. We simply cannot allow this to happen.

However, time is running out. He has to make a plan.

“I just know it’s inevitable,” he said. “Either way, it’s not a straightforward process. Now, this story of capital gains complicates matters.

The New York Farm Bureau is trying to get the federal government to provide the same tax benefits to all heirs who will operate a farm, even if they are not family members of the original farmer. The idea is to exclude all agricultural land that remains in use.

“A lot of people think we’re passing it on to the next generation. But most of the time, the next generation is not a member of the family, ”said Lauren Williams, associate director of national affairs at the Farm Bureau. “Access to land and capital to buy this land is a very big problem. Even existing farms, if they want to expand, find it difficult to buy land. A developer is able to go for it and offer a really high price that they just can’t compete with.

This is tempting for many heirs because they need the money to pay the estate and capital gains tax bills within nine months.

“You could sell it to a developer for a higher price and not have to worry about it because you are getting so much (money),” she said.

Some farmers are turning to conservation easements either to reduce the value of their land or to raise money to help pay inheritance taxes. The easements prohibit the development of the land. But it takes at least two years to get an easement approved, said Mike Horn, Saratoga PLAN’s director of conservation.

“Conservation easements can be a powerful estate planning tool, especially in Saratoga County,” Horn said. “One of the things we certainly see is that there are farm families who don’t have an interested family member to take care of.

In this case, an easement can make the difference by allowing the land to be assessed for property taxes as a farm, rather than at its fair market value.

Yet Wood’s farm is so large and the estate tax changes in 2026 so significant that an easement wouldn’t completely solve the problem.

“If you reduce the value of this (farm) by 75%, it could drop it below the property tax threshold. It doesn’t help after 2025, ”Horn said.

Horn wants federal tax policy to reflect the idea of ​​working farms, rather than generational family farms.

“Policy solutions that keep farms and forests going and working… it would be great if it made it easier to transfer to a skilled farmer, whether they are family or not,” he said. “Give active farms the opportunity to remain active farms. “

Farms in Saratoga County are at great risk, due to the value of vacant land for housing development, he added. From 2012 to 2017, the county lost 9 percent of its farmland to development.

“It is a huge sum,” he said. “You can only do this a few times.”

[ad_2]
Source link

Leave a Reply

Your email address will not be published.