Transfer Tax Can Be Worse Than Estate Tax

This morning I gave a 20 minute talk on President Biden’s tax proposals for the Washington Potato and Onion Association in Leavenworth, Washington before driving to Seattle to catch a flight to Cedar Rapids, Iowa.  Tomorrow, I will be part of the team for the Farm Futures Ag Boot Camp.  I think this is about my 7th year of being part of this program.

As part of my talk this morning I gave an example of how farmland worth $30 million with a basis of $1 million since Grandpa purchased the property in 1960.  At the time of his death, he had a mortgage on the land of $20 million and owned no other property.  Since the lifetime exemption is $11.7 million, his heirs will not owe any estate tax.  However, his final income tax return will report a gain of $29 million and the estate will owe about $14 million of combined federal and state income tax.  

The result is instead of having an asset worth $10 million, the heirs are now upside down by $4 million.

Although this is an extreme example, many situations could be very similar to this.  We will keep you posted.