Sep 16, 2014
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The Farm CPA

RSS By: Paul Neiffer, Top Producer

Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.

State Estate Tax - 2014 Update

May 26, 2014

Many states have either completely repealed their state estate tax or they have an estate tax that is tied to the old federal state estate tax credit. Since the federal law changed many years back to repeal the state tax credit, all of those states that relied upon receiving the state tax credit amount really no longer have an estate tax. Many of these states are in the process of administratively eliminating the state estate off of their books. However, there are still several states that have an estate tax and we will recap the current law (based upon a chart maintained by McGuire Woods LLP):

States with a current estate tax and the threshold amount:

  • Connecticut - $2 million
  • Delaware - $5.34 million indexed for inflation
  • District of Columbia - $1 million
  • Hawaii - $5.34 million indexed for inflation
  • Illinois - $4 million
  • Maine - $2 million
  • Maryland - $1 million
  • Massachusetts - $1 million
  • Minnesota - $1.2 million (increases by $200,000 each year until 2018 when it is $2 million)
  • New Jersey - $675,000
  • New York - $2,062,500 (from April 1, 2014 to March 31, 2015, will then gradually increase until it equals the federal amount on January 1, 2019)
  • Oregon $1 million
  • Rhode Island - $921,655
  • Vermont - $2.75 million
  • Washington - $2 million

You need to be careful when reading the threshold amounts. In many cases, the threshold amount is based upon the gross value of the assets held by the decedent in all states. So, if you lived in South Dakota, but had inherited farm land in Washington state with a value of $1.875 million, many taxpayers would naturally assume that no Washington state estate tax is due since $1.875 million is less than the $2 million threshold amount. However, if the total value of all assets owned by the decedent is $5 million then, Washington state would effectively assessed tax based on the $5 million value times 37.5% ($1.875 million divided by $5 million). Therefore, assuming the gross tax on a $5 million estate in Washington is $450,000, the actual amount of Washington state estate tax would be $168,750 (not zero as many would assume). Most states use this method. If you state is listed as having an estate tax, you would need to check how the threshold amount applies to your situation.

Many farmers with larger estates have already placed their farm land into some type of limited entity (LLC, LLP, LP, etc.). In many cases this converts your holdings of real estate into holdings of personal property. Assuming you have now moved to a state with no estate tax, you may assume that you no longer owe tax to the state where your farmland is based. In many cases, this is not correct since the state will "impute" that real estate to you based upon your ownership interest. One example is Minnesota.

State estate taxes remains an ever evolving process and we will try to keep you updated on an annual basis (or sooner is something major happens).

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