Many voters get all excited during an election year. We demand change, but then once the election is over, we rarely give a passing moment to check how our elected officials are doing on our behalf.
So are you watching your elected officials?
For farmers, this could be a very important year, especially at the federal level. I think it is no secret that little gets done in Washington, D.C., during a presidential election year because no one wants to make the other side look good.
I hope this does not happen this year due to the impending changes to the special bonus depreciation limits and federal estate tax. Both of these could have an impact on the viability of our farms in Ohio.
Over the past few years, Congress has repeatedly allowed faster depreciation of capital assets to stimulate business investment. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended two bonus depreciation measures through 2012 to encourage new equipment purchasing.
Both the Section 179 expensing and accelerated first year depreciation allowances have allowed businesses to write off capital expenditures in the purchase year instead of recapturing their cost through a normal depreciation schedule which could be anywhere from five to 20 years.
Under current law, the Section 179 expensing allows $139,000 to be deducted in 2012. This provision falls to $25,000 each year thereafter. In 2012, the accelerated first year depreciation is limited to 50 percent of the purchase price, whereas in 2011 it was 100 percent. This provision is scheduled to be eliminated after this year.
The big question for 2012 is will Congress move to increase the Section 179 expensing and / or extend or increase the accelerated first year depreciation? Farmers should watch the actions of Congress and plan accordingly.
If these two provisions are eliminated, some farmers may be in line for a larger tax burden in future years because they have used these accelerated measures as an annual way to reduce taxable income. With these provisions gone, capital expenditures would be back on normal depreciation schedules with less to deduct each year.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 also had an effect on the federal estate tax. And quite frankly, this is the one area that concerns me the most when I think of many of our farms in northeast Ohio.
But this drastically changes, beginning next year, if Congress does not act. Under the provisions of the aforementioned 2010 act, the federal exemption will be reduced to $1 million and any excess will be taxed at a whopping rate of 55 percent. This could affect hundreds of farms, small businesses and recipients of oil and gas lease payments.
Some encouraging news is that at the close last month, Sen. John Thune, a Republican from South Dakota, introduced the Death Tax Repeal Permanency Act S. 2242, which would permanently abolish the federal estate tax. This act would repeal the federal estate tax, repeal the federal generation-skipping transfer tax and lock in a $5 million lifetime gift tax exemption and 35 percent gift tax rate.
So time will tell what happens in this arena. Remember, this is an election year, so there is not much hope that any action will be taken on the federal estate tax until after November.
So what can farmers do? As with any legislation, take time to exercise your right to talk to your elected officials. Let them know how the changes to the federal estate tax could affect your farm.
More importantly, schedule an appointment with your attorney to make sure your estate plan is up to date. Be proactive, not reactive.
To contact your elected officials, go to the House of Representatives website at house.gov and search for your local congressman using the ZIP code search engine, and your state senators at senate.gov and search by state. You can also access and monitor the progress of Senate Bill 2242 and House Resolution 2242 at these sites.
David Marrison is associate professor and extension educator, agriculture and natural resources, Ohio State University Extension. He can be reached at 330-638-67838 or marrison.2@ osu.edu