Page 9 - LandBroker MLS Magazine Summer 2021

There are several proposed tax law changes that could influence the ranch and farm marketplace

and I feel privileged to be able to discuss my thoughts on opportunity. Say the parents are now gone and the property $3.5 million and the increase of the tax rate on the taxable
these proposed changes and their possible effect on the is now worth $1 million when received by the heirs, and the estate to 45%. If the federal estate tax is not a concern, that
rural marketplace. I am going to focus on 4 proposed little brats decide to sell the property for $1.1 million. Their is great — but if it is, a conversation with your appropriate
changes. These proposed changes are (1) the elimination new basis because of the stepped-up basis is $1 million so advisor should be at the top of your list. Unfortunately, I have
of 1031s or dramatically reducing the benefits to $500k, the taxes that the brats will pay is based on the $100k gain. not seen any direction on whether farmers and ranchers will
(2) elimination of the stepped-up basis, (3) the doubling of If the stepped-up basis is eliminated, then their basis when have any exemptions on the federal estate tax, so because
the capital gains tax to 39.6% and (4) the decrease of the received would be the same 100k as the parents when they of the appreciation of land over the last few years, it may be
federal estate tax exemption to $3.5 million and the increase originally bought the property. If they sell for $1.1 million, a good idea to get your land appraised. You may have a
in the federal estate tax rate to 45%. Although nothing has their capital gain will be $1 million and they will pay much potential federal estate tax problem and not know it. If so,
yet been finalized, I believe it is important to understand what more in taxes than they would have otherwise. This proposed that could be devastating to your family. One quick note
these proposed changes are and what they may mean to tax change may be somewhat under the radar of most and I learned this from a great Colorado broker. If there are
landowners. property owners but can be quite a shock when the heirs get minerals on the property, find out if those minerals are going
up in value or decreasing in value. That could help determine
their tax bill.
1 The first proposed change is the possible elimination The third proposed change is the possible doubling later which may be possible. If minerals are going up, use the
if you should value the property at date of death or 6 months
benefits to a maximum benefit of $500k. Although there 3
of 1031 exchanges or dramatically reducing 1031
of the capital gains tax to 39.6%. No explanation initial date but if minerals are decreasing in value, wait and
are a couple of other options to defer taxes, 1031s are by necessary. If this happens, I believe that there are at least 12 hopefully you can get a lower valuation and that can lead to
far the most popular. When selling and transacting a 1031, states that will have a tax rate of at least 50% on the gains a lesser estate tax burden.
if the seller follows the IRS requirements, he/she can defer of their sales proceeds. That is simply wrong. Here is a major
the capital gains tax, state tax, depreciation recapture and concern and that is the lack of information coming out about It is important to note that nothing is finalized yet and I am
the Medicare tax on the gains of the sales proceeds when those changes. Let me explain. We are told that the capital only writing what we know as of the end of May. Things may
buying another property. If 1031s are eliminated or the gains tax rate will only apply to families with a $1 million change, so please stay informed on what is happening with
benefits dramatically reduced, that could have a chilling income but here is the problem. I have not been able to find these proposed tax law changes. You may have options
effect on potential selling. Many families have properties that out exactly what income means? Is it earned income, or will and I would be more than happy to discuss some of the tax
they have owned for decades and it is not unusual to have it include capital gains income? For example, a farmer has deferral opportunities that are still available. Best wishes and
80%+ of the sales proceeds considered as capital gains worked hard for decades and now is ready to sell his farm good luck!
of the sales proceeds. If the capital gains are increased as and retire. He averages $50k annual revenue. He sells his
proposed, that would mean that sellers in at least 12 states farm and now has a $1.5 million capital gain. That capital
would be paying 50% or more in taxes on the gains of their gain may be included as income and now in the year that he
proceeds. If they are not increased, that could still be a tax sells, his income is $1.55 million, and he is over the income David Fisher is the founding partner of Creative Real Estate
of 30% or more. Why would anyone sell unless there was threshold. My instincts — based on being in practice for over Strategies, based in Houston, Texas. They specialize in tax
a distressed situation? This proposed change could have a 40 years — tell me this farmer would probably have to pay reduction and tax deferral strategies and have clients all over the
severe impact on selling ranches and farms. the additional taxes, which would mean that he could pay country. David’s 45-year background is in investments, insurance,
50% or more in taxes on his gains when including state taxes
tax deferral strategies and charitable giving.
2 The second proposed tax law change is the elimination if applicable, depreciation recapture taxed at up to 25%, His website is CRESKnowsRealEstate.com. His email address is
of the stepped-up basis. The stepped-up basis may not and the Medicare tax. Hopefully, the term “income” will be
be quite as well known as 1031s, but it can play an integral clarified for everyone’s benefit soon. david@cresknowsrealestate.com and his mobile is 713.702.6401.
part of selling property especially when heirs are involved. He can be reached almost any time, especially considering how
that the property will appreciate in value so when the parents 4 The fourth proposed tax law change may not affect horrible his Rockets and Texans are and would much rather talk
For example, parents buy a property for $100k and hope
all landowners but could cause major concerns
about deferring taxes than watching his teams.
pass on, they can pass the property on to their heirs and for those that have to deal with this proposed change. This
give them an asset to sell if they like in a tax advantaged change is the reduction of the federal estate tax exemption to

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