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Page 6 of 21 |
A small word about farm and closely held business property |
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The Economic Growth and Tax Relief Reconciliation Act of 2001 repeals the family-owned business interest deduction in 2004.
The Federal estate tax recognizes the uniqueness of certain farm and closely-held businesses. And as such the law provides certain relief provisions, specifically the availability of installment payments of tax and special valuation rules.
If a substantial portion of an estate consists of a family farm or real estate of a closely-held family business -if tests are passed -- the executor can elect to value the real estate at its current business use, rather than at its highest-and-best-use (up to a $750,000 ceiling). The real estate must pass to a qualified heir (e.g. parent, spouse, children) and meet IRS participation requirements. But keep in mind: selling the business to another within 10 years after the decedent's death, or no longer using it for business, triggers a "recapture" tax-legalese, meaning, you lose the tax-saving benefits of the special use valuation and an additional tax is imposed.
The regular 9-month pay-now deadline for estate tax is ignored for an active family farm or closely-held business-if certain criteria are met. The estate tax attributable to business interests can be paid in installments over, at most, a 14-year period, at low interest rates. Interest payments on the deferred tax are due only for the first four years, followed up by annual installments of interest and principal for the next 10 years. A portion of at least some of the interest on the deferred payments is at 2% on the first $1,000,000 in taxable value. Breaking up the business as well as tardy installments can jeopardize the deferred payment plan.
If your estate has this type of property, consult with an attorney specializing in estate tax planning. The rules in this area are complicated and unique and careful planning is a necessity. |
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