Another Estate Tax Goodie in Proposed Tax Act!

One of the newly proposed estate tax rules in the proposed tax act is the allowance of estates to combine both spouses lifetime exemption to maximize the estate tax savings.

Under current law, if the first spouse passes away and if their estate is less than the current lifetime exemption, the excess is lost forever.  For example, if a farmer passes away worth $2 million and leaves the farm to the spouse and then the spouse passes away with the farm worth $8 million dollars, the second estate will pay estate taxes on $3 million or about $1 million in total estate taxes (this assumes a $5 million lifetime exemption for both).

Now, under the proposed new law, when the second spouse passes away, the estate can combine the $3 million not used in the first estate plus the $5 million in the second estate.  This results in a total combined estate exemption of $8 million which is equal to the total value of the estate which means there is no estate tax owed.

As you can see, the new proposed law can easily save the estate $1 million or more.

The Senate is expected to vote on the bill by the end of this week and then send it to the house.  If the house simply votes on the bill as is, we should have the bill in place by Christmas.  However, if the House makes changes, we will most likely not have a bill until after Christmas and it may not become law until right after the first of the year or it may become caught up in the lame duck status of Congress at that time.

Paul Neiffer

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

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1 Comment

  • October 14, 2012 at 11:07 am

    al olson

    Hi,
    I was wondering if you could answer a question for me.
    I inherited some grain inventory this year. I understand that because it is business inventory I don’t get the step up in basis. Who pays the tax, at what rate, and when is it paid? The grain is valuated for inventory purposes and the tax is paid by the estate. Is the tax obligation fulfilled then, or do I pay tax again after the grain is sold? Can you give the link to confirm this?

    Thanks.

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