ESTATE TAX CHANGES LOOM AS FISCAL CLIFF DEADLINE NEARS
With the fiscal cliff looming, the impact of higher taxes could be felt by Americans during life and after death.
|If no action is taken on the fiscal cliff deadline, estate tax exemptions will decrease to $1 million while the tax rate will increase to 55 percent. The new rates would affect 4,547 farms in Alabama. |
That’s because the rate of one’s estate tax — a tax imposed by the Internal Revenue Service when someone passes away — will increase if no action is taken. Currently, the estate tax rate imposed on the value of a person’s assets transferred to another person or organization is 35 percent. If an agreement isn’t reached by year-end, the rate will jump to 55 percent.
Now, taxpayers can exempt up to $5 million of their assets from the estate tax. However, if America goes over the fiscal cliff, the exemption will be limited to $1 million. For farmers who own land, it is easy to be well above the $1 million exemption, leaving estates subject to the higher tax rate.
“For farmers, going to a $1 million exemption is a big deal,” said Steve Hughes, director of Advanced Sales for Alfa Insurance. “It is a net value, so all of your debt comes out. They look at fair market value based on the best use of the property.”
Even people who aren’t landowners should be aware of the exemptions.
“From the perspective of the life insurance needs of an individual, it’s important to note that life insurance owned by an individual on their own life or payable to the benefit of their estate is included in the estate for estate calculation,” Hughes added. “Therefore, absent proper insurance planning, life insurance could be taxable by virtue of its inclusion in the estate.”
Hughes said President Barack Obama’s proposal would meet in the middle of the current exemption and the $1 million limit that could come to be.
“The Obama proposal put before Congress is $3.5 million per person, indexed for inflation in the future and portable so that if mom or dad dies, their exclusion from tax moves to their spouse… effectively doubling the exclusion to $7 million — if Congress acts,” said Hughes.
According to data from the USDA’s 2007 Census of Agriculture, the current estate tax structure affects 241 Alabama farms. The $1 million exemption and 55 percent rate would affect 4,547 farms in the state.