It has been a month since the Super Tuesday election. Boy, it has been peaceful these past few weeks.
Amazing how the barrage of robo-calls subsided after March 6. However, it won’t be long before we are once again inundated with campaign advertisements citing the merits of each candidate as we move closer to the November election.
Many voters get all excited during an election year. We demand change, but then once the election is over we rarely give a passing moment to check how our elected officials are doing on our behalf.
I once had an elected official tell me that voters never remember what he did in the “off-election” years. So, are you watching your elected officials?
For farmers, this could be a very important year; especially at the federal level. I think it is no secret that little gets done in Washington, D.C. during a presidential election year because no one wants to make the other side look good.
I hope this does not happen this year due to the impending changes to the Special Bonus Depreciation Limits and Federal Estate Tax.
Both of these could have an impact on the viability of our farms in Ohio. Let’s take a look at these.
Bonus Depreciation
Over the past few years, Congress has repeatedly allowed faster depreciation of capital assets to stimulate business investment.
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extended two bonus depreciation measures through 2012 to encourage new equipment purchasing. Both the Section 179 Expensing and Accelerated First Year Depreciation allowances have allowed businesses to write off capital expenditures in the purchase year instead of recapturing their cost through a normal depreciation schedule which could be anywhere from five to 20 years.
Under current law, the Section 179 expensing allows $139,000 to be deducted in 2012. This provision falls to $25,000 each year thereafter. In 2012, the Accelerated First Year Depreciation is limited to 50 percent of the purchase price, whereas in 2011 it was 100 percent.
This provision is scheduled to be eliminated after this year. The big question for 2012 is will Congress move to increase the Section 179 Expensing and/or extend or increase the Accelerated First Year Depreciation?
Farmers should watch the actions of Congress and plan accordingly. If these two provisions are eliminated, some farmers may be in-line for a larger tax burden in future years because they have used these accelerated measures as an annual way to reduce taxable income.
With these provisions gone, capital expenditures would be back on normal depreciation schedules with less to deduct each year.
More information on these deduction limits can be found at http://ohioagmanager.osu.edu/tax-management/section-179-accelerated-depreciation-limit.
Federal Estate Tax Exemption Limits
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 also had an effect on the Federal Estate Tax. And quite frankly, this is the one area that concerns me the most when I think of many of our farms in northeast Ohio.
The estates of every U.S. citizen are subject to the federal estate tax upon their death. However, a certain potion is exempt from the tax.
In 2012, this exemption is $5.12 million. Therefore, in 2012, if the value of the net estate — meaning the gross estate reduced by allowable estate tax credits and deductions — does not exceed $5.12 million, then the estate will pass to the heirs free from federal estate taxes.
Any amount above $5.12 million is subject to a 35 percent tax. But this drastically changes, beginning next year, if Congress does not act. Under the provisions of the aforementioned 2010 act, the federal exemption will be reduced to $1 million and any excess will be taxed at a whopping rate of 55 percent.
This could affect hundreds of farms, small businesses and recipients of oil and gas lease payments. It is not hard for many of our farms to be valued at more than $1 million dollars. Can you afford to pay a 55 percent estate tax on the value above $1 million?
This could be a nail in the coffin for many small farms trying to transition their farm to the next generation.
Action steps
So what can I do? I think it is imperative that farmers exercise their right to talk to elected officials.
Let them know how the changes on the bonus depreciation measures and the federal estate tax could affect your farm. More importantly, schedule an appointment with your attorney to make sure your estate plan is up to date.
Be proactive not reactive. And remember, have a good and safe day.
Contacting your U.S. House of Representative. Go to the House of Representatives website at http://www.house.gov/ and search for your local congressman using the Zip code search engine and your State Senators at http://www.house.gov/ and search by state.
