May 2011 NE Iowa Farmer
Walking the Tight Rope.
An individual can give up to $5 million during his or her lifetime without paying a gift tax, and for couples that threshold is $10 million. Before, the limit was $3.5 million per person. As land prices continue to rise, a smart estate plan could utilize the gift tax exclusion to pass on highly valued farm ground to the next generation. Ir a gift recipient decides to sell, that the land’s presumably low basis also transfers with the title, creating a capital gains tax issue It is a delicate balance of interests to decide what is the best course of action and no one course of action fits all parties. The higher gift tax exemption is only on the books until 2013, so those who take a long time to contemplate may be left out in the dust. The capital gains event can be wiped out by holding on to the property until death. The land is then subjects to creditors claims and if the value rises, puts the estate in the position of having to pay estate tax, which is higher than capital gains taxes usually.
In bed with the Dragon: Brazil’s Battle with China
China has become Brazil’s leading trading partner, buying increasing volumes of soybeans and iron ore, while investing billions in Brazil’s energy sector. The demand has helped fuel an economic boom.
Nearly 84 percent of Brazil’s exports to China in 2010 were raw materials, up from 68 percent in 2000. Yet roughly 98 percent of China’s exports to Brazil are manufactured products ( including the latest, inexpensive cars for Brazil’s emerging middle class ) that are beating down Brazil’s domestic industrial sector.
This is an unbalanced relationship. China, however, is not content simply purchasing raw materials, they want to own ground in Brazil. Brazil’s current government is not as China focused as the last one and is trying to rebalance the relationship and move closer to the U.S.
Brazil has taken steps to curb the ability of foreigners to own land outright, but China’s dominate position in the country’s economic structure will make sure it will be tough to tell China. By contrast, China does not allow ownership of much if any of its own soil by foreign concerns.
Brazil is the competitor of US Ag production since we both sell to China. China’s move to control the raw material production in Brazil should serve as a wake up call to US farmers and policy makers. As the government sits on its hands regarding free trade agreements with South Korea, Columbia and Panama, China plows ahead. Once China secures the source of the raw materials it needs to feed its growing populace they will no longer need US products.
In Iowa, foreign concerns can’t own farm ground, in fact Iowa has a stringent set of rules on who can own farm ground. Corporations cannot own farm ground unless it is converted to non farm ground within 3 years of purchase or it is a family farm corporation. An Iowa Ag layer can help you determine if your company fits this exception.
Cuts like a Knife.
The Congress recently moved to reduce the USDA spending levels down to 2008 budget levels. In fiscal year 2012, $108.2 billion is budgeted for “mandatory” programs such as food stamps ($71.2 billion), the Commodity Credit Corporation ($14.1 billion), the Federal Crop Insurance Corporation ($3.1 billion) and the Agricultural Marketing Service ($1.1 billion). Plus $17.25 billion in discretionary spending.
That is a lot of dough, even after it was subjected to the Congressional knife. Somehow, I think there is still fat on the meat that other interests like the EPA, Social Security, military spending are going to want to carve off to their own pet projects.
Buy Big or Go Home
Internal Revenue Service Revenue. Proc. 2011-21 and 2011-26 is not something to be read without access to Five Hour Energy or No Doze pills, however its has some very important implications to
agricultural law. CPA Douglas Stives of Monmouth University provides some insightful points in analysis on those IRS documents.
The bottom line: There is a big incentive for businesses to buy a behemoth gas guzzler like a Cadillac Escalade or Ford Expedition this year. They can deduct 100% of the purchase price immediately (minus a disallowance for any personal use, of course). Lawmakers were far less generous with depreciation deductions for purchases of cars weighing less than 6,000 lbs. How can this be?
*The IRS defines a “luxury car” as ,believe it or not, e costing more than $15,300. Such cars are subject to depreciation limits unless they weigh more than 6,000 lbs. and the special 100% deduction applies.
*The maximum first-year depreciation for these “luxury cars” is $11,060. This consists of an annual regular depreciation of $3,060 for the first year plus “bonus” depreciation of up to $8,000. The write-off in year two is normally $4,900, then $2,950 in year three, and $1,775 in tears four and beyond.
*Changes to the law last year left first-yext goround, so if the big vehicle is something your business operation needs, this may be the time to take the plunge.ar depreciation for “luxury cars” unchanged, but the congress reduced the out-year deductions for those costing less than $30,625. For example, a $20,000 car would get a second-year deduction of only $3,200 instead of $4,900. The higher deductions still apply to cars costing more than $30,625 (and weighing less than 6,000 lbs.).
I would think something will be done about this the new tax rules. The IRS is always
looking for revenue, it is in their nature and their name.