August 9, 2023
by Ryan Conklin
Last summer, American Agriculturist published a Country Counsel article titled “Tax Cuts and Jobs Act of 2017: Halfway to Sunset.” The piece sought to highlight the impending estate tax sunset at the end of 2025.
Normally, I would not recycle Country Counsel topics so soon. However, the combination of strong land values, growing balance sheets and a significant reduction in the estate tax exemption will present some difficult decisions for many farm families.
Given the potential impact and the necessary lead time to meet with professionals and formulate solutions, revisiting this subject is a worthwhile effort.
Looking back to early 2017, the Tax Cuts and Jobs Act went into effect. The act contained multiple automatic sunset provisions set to kick in at the end of 2025.
One of the sunset provisions is tied to the estate and gift tax exemption. The Tax Cuts and Jobs Act doubled the estate tax exemption up to about $11 million per person. With that exemption level indexed annually to inflation, the current exemption threshold is $12.92 million per person. This means that the first $12.92 million in a person’s estate at the time of death is exempt from estate taxes.
Fast-forward to Jan. 1, 2026, and the estate and gift tax exemption amounts will sunset unless otherwise extended by Congress and the president. Projections for the post-sunset exemption level place the new amount about $7.5 million per person. Keep in mind, that every dollar in a person’s estate over the exemption level is subject to a 40% flat tax.
Farm families should be proactive when planning around this sunset event. Balance sheets that are strong on land and equipment and low on cash could face some difficult decisions to manage potential tax liability. The last thing families want to do is sell farm assets to pay a tax bill or disrupt business operations.
With a general election scheduled before the sunset date, it is impossible to predict whether the sunset will occur, or if the higher exemption levels will be extended. Regardless, taking proactive steps today can save a lot of time and money if urgent changes to your succession plan are required.
Financial, tax, legal and appraisal professionals are likely to face an extremely busy 2025. Furthermore, the availability of these professionals in rural communities is in short supply. If your family could be in estate tax territory after the sunset, the best strategy is beginning the effort now. Waiting until 2025 to engage a succession planning team and develop a strategy for managing potential taxes could be costly.
Conklin is an attorney and owner of Wright & Moore Law Co. LPA.
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