Proposed Colorado bill aims at lessening the cost of inheriting agriculture land
February 19, 2012
The fact that nearly 700 acres of agricultural land is taken out of production each day doesn’t sit well with Sal Pace.
So the southern Colorado lawmaker decided to do something about it, and, in the process, has proposed a bill that has so far found support from fellow legislators, and also from some producers in Weld County.
The measure recently proposed by Rep. Pace, D-Pueblo, would provide an income tax credit for heirs of agricultural property – serving as a reimbursement for the state’s portion of the estate taxes collected on the property.
Pace said the bill was inspired by hearing the stories of producers – many owning valuable land but not large amounts of cash onhand – who inherited property and were forced to subdivide or sell off portions or all of it, just to pay the estate taxes.
Pace said the bill is geared toward preserving the state’s agricultural heritage, at a time when farming and ranching acres are being taken out of production every day.
Pace’s proposed bill – HB1042 – cleared its first hurdle earlier this month when the House Finance Committee approved it 9-3.
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Next it will go before the Colorado House of Representatives Appropriations Committee some time in March.
“It’s a serious problem that requires action,” Pace said of the many acres exiting agriculture production, and of the fact that many families are forced to sell their property to pay estate taxes on valuable agriculture land.
Frank Eckhardt – who owns portions of his family’s 3,700-acre operation near LaSalle, and would like to hand down that land to his farming kin – said he’s seen families around him suffer.
“Over the years, there’s been a number of farming families in this area who have had to sell off a lot just to pay what they owed in estate taxes. It’s a sad deal,” said Eckhardt, who said he has done some estate planning in order to pass on his land to his family. He said he would be in favor of a bill, such as Pace’s, that could make it less expensive for his family, and others, to accept agricultural land and keep it productive. “Agriculture is already faced with a numbers obstacles,” he said. “It’s nice that this might not be one of them for farmers in the future.”
Pace’s bill carries the provision that those who inherit the agricultural land keep using it for the purpose of agriculture production for at least a decade, or they would be required to repay what they otherwise would have owed in estate taxes.
Currently, the federal estate tax is suspended, but it is due to resume in January 2013 unless Congress acts to stop it. Likewise, Colorado does not currently have an estate tax.
Because no estate tax is currently assessed, opponents of the bill have said that Pace’s proposal wouldn’t accomplish anything.
However, if the federal tax is reinstated in January, Pace’s bill would reimburse families for the portion that goes to the state.
Other opponents of the bill aren’t in favor of the state giving up an estimated $6.5 million in revenue over three years to spare some agricultural families from paying the tax.
As it stands, property worth $1 million or more would be subject to inheritance tax in January – if Congress doesn’t act to continue the tax suspension – and estate taxes could be as high as 55 percent of the property’s value.
With agricultural land values soaring, estate taxes could be pricey when or if the federal estate tax is reinstated. Growing global demand for food, a lack of reliable investment options in a weak economy, high commodity prices and low interest rates have contributed to farmland values in some parts of the country doubling in recent years.
In Weld County, agriculture property values have increased by about 10-15 percent during the past few years, with prime, irrigated farm ground now valued at about $5,000 per acre.
At that price, just 200 acres would amount to $1 million in land value and surpass the estate tax exemption – and that’s before adding in the value of structures and machinery on the property.
“It certainly doesn’t take long to add up to a $1 million on a farm,” said Eckhardt.
But while Pace’s bill is geared toward reducing the expense of inheriting agriculture land, some say there are ways to do that even if the bill isn’t enacted.
“There’s no substitute for good planning,” said Dana Scheidecker with Northern Colorado Agribusiness in Eaton. “There are a number of strategies that can be used to greatly minimize the stress of handing down your assets … it just takes good planning.”