The lie about the new tax credits: AMT claws them back!

According to

Personally, I'm delighted that I don't own property in California. At this point, we're trying to decide whether it would be a good idea to pay off the remaining $49K balance on our 15 year 5.875% fixed rate mortgage. In this economy, 5 7/8% risk free is pretty darned good.

R's, John

PS: In case it's not obvious, the value for estate tax is the current value, not what one might have paid three years ago when taking out an underwater interest-only no-doc ARM mortgage.

"Wallace" wrote:>

There are already laws that make estate taxes easier on both family farms and other family businesses. See IRC §2057 (family businesses) and 2032A (family farms).

And, as a practical matter, how would one know/discover the underlying reason(s) for a sale? It isn't part of disclosure.

I (as a farmer) certainly know of ones around here that either were sold or were seriously hampered in operation owing to (primarily) unexpected/early death that made it necessary to make serious modifications in the family operation in order to retain a portion. We're now small potatoes and have barely sufficient ground to make farming alone a paying venture and it will still be difficult to keep the land together in an entity. The loss of even one quarter would be then end of it as a farming entity, undoubtedly.

Meanwhile, the same size place in the middle of Missouri (e.g.) would be only $100k or less; the only difference being location.

My point: What may be reasonable for some regions of the country are not reasonable for other regions, and California has 10%+ of our country's population, so it's a significant region.

Mortgages in my area are about 4%. You should refinance if possible.

IRC 2057 seems to increase the estate exemption by an additional 625k, but only if over half the estate is a family business. Is that about right?

IRC 2032A seems to allow you to value your estate at less than FMV using a complicated formula.

Is this about right?

Um, not to put too fine a point on it, I've offered statistics that at least 75% of houses offered for sale in major metro areas in California have been priced under $900K, even at the height of the bubble, and you seem to be saying that your neighbors thought their houses were worth $2M at the bubble's peak. Somehow that doesn't seem like a compelling basis on which to make tax policy.

Around here (where we didn't have a price bubble because the banks have a quaint policy that they only offer mortgages to people who are likely to be able to pay them off) the APR is 4.66% for 15 year fixed. You can only get 4% on a three year ARM which doesn't strike me as a great plan. And anyway, for only $49K, the transaction fees would eat up any possible interest savings.

R's, John

Are you suggesting that each region should have a different federal exemption? It does make sense, but may not be good policy in the long run. In any case, I think that owning a 2000 square foot home in a fancy area of an expensive city of CA is like owning a stock that has gone up in value. If it's value uses up the estate exemption, so be it.

Actually, the break applies to all family owned businesses, not just farms.

The estate tax law in effect from 2009 results in about 5,500 estates actually paying estate tax.

and billions of dollars being spent on estate tax planning, and maintaining the additional entities created for such estate tax planning.

very few people paying estate taxes does not equate to very few people being affected by estate tax laws.

And, such a narrow based tax is considered by many to be extremely unfair and counterproductive.

Presumably, somebody it happened to would complain, and the people searching hard for such cases would hear about it. Bayes Theorem says that the likelihood of it having happened is therefore quite low.

What does that mean? What sort of "modifications"? If the children (heirs) didn't want to be full-time farmers but had other jobs, and that's what kept them from farming, that was their choice, not a forced sale to pay inheritance taxes.

Seth

So it has to be they had to sell the whole da-d thing for it to be a problem in your mind?

Or couldn't purchase equipment or find sufficient other operating capital w/o constricting the operation?

There's more complication to it than simply selling the whole bloody operation.

Chances are that was unrelated to estate taxes, because the law is written to reduce the effect on small farms and other family owned businesses.

Out of about 2,500,000 people who die in the US every year. That's about 0.2%.

That's not only for estate tax planning. Only the people who can or may need it do that. Avoiding the costs and inconvenience of probate is a much larger issue, and applies to a much larger pool of people.

Yeah, a tax that only charges people who can well afford it is really unfair.

How would you know from there???? :(

(As compared to being a neighbor and discussing the situation w/ the families involved, that is... ?)

Again, it isn't as clearcut as you would like to make it appear as to what constitutes a serious effect on the business operation. Even as "small" a perturbation as using up working capital for estate settlement purposes and the resulting effects on operations can be major hurdles. In one case it ended up in forced sale some years later; in the otherof which I'm thinking the jury is still out but it's a struggle still after five years.

For it to stop being a farm because the person who farmed it full-time died and his children didn't want to isn't an inheritance tax issue.

Seth

"estate settlement purposes" means what? Paying legal fees? Proving cash inheritance for those who didn't get the farm? Those aren't inheritance tax issues.

Seth

That's not what happened in either of the two cases I personally know and mentioned; that's your supposed scenario (to rebut the actuality, apparently).

In neither case did you say specifically that it was inheritance taxes that forced the sale, with details (such as the value of the farm and amount of those taxes).

Seth

I said in these two examples the tax burden was sufficient to cause extreme operational difficulties; one case which ended up in the forced sale relatively short time later and the other with a greatly different (and smaller) operation afterwards owing to forced restructuring.

The point is there's far more to the problems raised than your simplistic argument that the entire place is sold immediately. That they weren't still doesn't make the estate tax problem go away.