By Erin Herbold
In April, Congress passed legislation wiping out the expanded 1099 reporting requirement for payments over $600 made to corporations (scheduled to begin in 2012). That was for any payment--whether it was for farm equipment, feed, fertilizer, fuel, health care, etc.--anything over $600. Congress also did away with the requirement for rental property expense payments over $600, a rule that began this year.
The provisions were widely unpopular in the ag community. A congressional report from IRS National Taxpayer Advocate says the expanded 1099 reporting requirement in the Health Care Act would have applied to nearly two million farming businesses in the U.S. (essentially all farmers). For more information, take a look at Roger McEowen's article on the CALT website www.calt.iastate.edu/form1099.html.
Question: Can you give me an update on the federal tax law changes regarding estates? What did Congress come up with at the end of last year? I'm doing some estate planning for our farm and would like a brief explanation of the new law.
Legislation enacted by Congress and signed into law by the President in late 2010 significantly changes the rules impacting estate plans. While the changes are major, they are only temporary for 2011 and 2012.
For a more complete update and explanation, read the article "Estate Planning, Temporary Certainty" in the February 2011 CALT newsletter at www.calt.iastate.edu.
Basically, here's what happened. After much uncertainty last year, when the federal estate tax didn't exist but was slated to return, Congress added a bit of stability for people making tax plans in 2011. "I call it temporary certainty," says Roger McEowen, professor of ag law at Iowa State University. The change in the law is helpful for people planning estates. The pressure is off for a lot of people, but only for two years.
That means lawmakers eventually will need to tackle the issue again, and when they do, it will be a presidential election year. The temporary changes at the end of 2010 were significant.
The first change, of course, is there is an estate tax in 2011 and 2012. Also, for those who died in 2010, there is now a choice offered on whether to use the new levels and rates or go by the previous law which had no estate tax.
That may seem unusual, but McEowen explains the basis rule in 2010 was a "carry-over basis" rather than a "stepped-up-basis." Under the carry-over rule, an heir's income tax basis is the deceased person's basis, but that could be increased by up to $1.3 million (of fair market value) for property passing to someone other than the surviving spouse or up to $3 million for property passing to the surviving spouse.
For families of someone who died in 2010, the choice then may be between estate taxes and capital gains taxes. If the estate is smaller than $5 million, the best choice might be to take the 2011 rules and exclude it all and take the stepped up basis. For larger estates in some cases, it might be desirable to take the 2010 rules with no estate taxes but be faced with possible capital-gains taxes (which are taxed at a lower rate).
Another bit of key language in the new law makes the exemption portable. That means any unused amount of exemption at the time of death of the first spouse carries over to the surviving spouse, where it is added to that person's $5 million exemption.
Herbold is staff attorney for the Center for Agricultural Law and Taxation at Iowa State University.