PARKER, COLO. (RFD NEWS) — Projected inflation adjustments for 2027 are out, and an important number for farm families is the annual gift tax exclusion, which is expected to increase next year.
Farm CPA Paul Neiffer joined us on Thursday’s Market Day Report with the latest on what the change could mean for farm families and their operations.
In his interview with RFD News, Neiffer said the current annual gift tax exclusion is $19,000. Starting next year, he expects that number to increase to $20,000, although the adjustment is not yet final.
That means a farm couple could give $20,000 to as many people as they want without those gifts counting against their lifetime exclusion.
“If you’re under $20,000, you basically get to ignore it,” Neiffer said.
If a gift exceeds the annual exclusion, Neiffer said the donor generally has to file a gift tax return, but that does not mean gift tax will be owed.
“You’re not going to owe any gift tax,” he said. “You just have to file a return and that will just slightly reduce your lifetime exemption.”
Neiffer said the lifetime exemption is expected to be almost $15.5 million next year.
Understanding the Exclusion
Neiffer said one of the most common misunderstandings is that the annual exclusion applies to a total amount a donor can give away each year.
Instead, the exclusion applies to each recipient.
“So, let’s take my wife and myself; most people think I can give $20,000? That’s it,” Neiffer said. “No, the answer is I can give $20,000 to each of my kids. I can give $20,000 to each of my grandkids.”
He also said gifts generally aren’t treated as taxable income to the recipient, and the donor doesn’t receive a deduction in most situations.
How Farmers Can Capitalize
Neiffer said farmers with significant net worth should consider how the annual exclusion could fit into their estate and succession planning.
“Especially if they’re getting close to that $10 or $15 million of net worth, which these days with farmland values where they’re at, that doesn’t take very many acres,” he said.
Neiffer said farmers can consider holding land in a family limited liability entity, where discounts may be available, and then begin gifting interests to the next generation.
“Start gifting it over to the next generation. Have them get some skin in the game,” Neiffer said.
Neiffer said the final adjustment should be known sometime next month.
