Legislation signed into law last week by Pennsylvania Governor Tom Corbett resolves a longstanding burden for transferring farms from one generation to the next. "The [state] inheritance tax has been a burden on farm families for decades," says Agriculture Secretary George Greig. "This law provides farmers the opportunity to save thousands of dollars in inheritance tax, allowing them to reinvest in their agricultural operations."
The tax code changes take effect immediately and apply only to working farms, notes Greig. One provision exempts the passage of farm assets from a deceased individual to close family members who continue the farm operation from inheritance taxation – death taxes.
Now, adult children of deceased farmers won't be required to pay a 4.5% inheritance tax. And brothers and sisters of the deceased wont' be required to pay a 12% inheritance tax.
That tax, notes Pennsylvania Farm Bureau President Carl Shaffer "was especially challenging for farmers, who typically have low cash reserves but need large amounts of land for their operations. When farmers are forced to sell off assets or farmland to pay off inheritance taxes, it reduces the productivity of the farm and threatens its future viability," he explains.
Another change exempts farm property from realty transfer taxation that's part of the reorganization of a family-owned farm business to a limited partnership, limited liability partnership or a corporation managed by the same family.
"The change allows farmers to get the same tax treatment as other family-owned businesses, adds Shaffer. Now farm families, who want to change their current business structure into a more helpful one for the family (like a limited partnership) have that same exemption.
The exemption would still require 75% of the business to be owned by members of the family making up the family farm corporation or family farm partnership.