Iowa State University Extension Update on Tax Reform

Earlier this week, Kristine A. Tidgren provided an interesting recap and summary of some parts of the tax reform proposals currently being considered by lawmakers in Washington, D.C.

The update, “Tax Reform: What’s on the Table,” was posted at the Iowa State University (ISU) Extension Center for Agricultural Law and Taxation webpage.

A variety of topics are covered in the ISU summary, but with respect to the estate tax, Ms. Tidgren noted that, “House: The House proposal would initially double the basic exclusion amount allowed for each person. Under this proposal, every person could die with up to $11.2 million in assets in 2018 and owe no estate tax. Portability would continue to allow a deceased spouse’s unused exclusion to be used by the surviving spouse. In other words, if both spouses were to die in 2018, they could exclude up to $22.4 million in property from the estate tax.

Under the House plan, the estate and generation-skipping tax would be repealed altogether beginning in 2024. The gift tax would remain, although the higher exclusion amounts would apply. Most significantly, the House proposal would retain the current basis adjustment at death. This allows heirs to receive appreciated assets with the basis adjusted (usually stepped-up) to current fair market value.

Note: In 2016, there were only 5,219 estate tax returns filed for taxable estates. Only 682 of those taxable estates had any farm property (2% of total taxable assets).

Senate: The Senate proposal would also double the basic exclusion amount and retain the step-up in basis. The Senate plan, however, would not repeal the estate tax and generation skipping tax for estates valued greater than the increased basic exclusion.”

This week’s ISU update also noted that, “The most costly change in both proposals is to lower the maximum corporate tax rate from 35% to 20%. The House proposal would implement this change beginning in 2018. The Senate plan would delay the reduction until 2019. Reducing the corporate tax rate over a 10-year period would cost nearly $1.5 trillion.”

And Ms. Tidgren pointed out that, “Both proposals would retain IRC §1031 like-kind exchange treatment for real property, but eliminate it for personal property, such as farm equipment or breeding heifers. The proposals also eliminate the domestic production activities deduction (DPAD), which is frequently used by agricultural producers, beginning in 2018.”

The full Iowa State University update is available here.

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