By Andi Anderson
One common topic in farm succession planning is whether to gift assets during one’s lifetime or wait for them to transfer after death. Both approaches carry significant financial and tax implications, so farmers are encouraged to discuss these decisions with their professional advisors and family members.
The One Big Beautiful Bill Act of July kept the annual gift tax exclusion unchanged. Each person can still gift up to $19,000 per recipient per year without filing a gift tax return, paying gift tax, or reducing their lifetime estate tax exclusion of $15 million.
Married couples can jointly gift up to $38,000 annually. This amount increases over time with inflation in $1,000 increments.
Gifts can include more than cash — such as business interests, real estate, vehicles, or personal property. However, when gifting business assets exceeding the annual limit, a formal valuation and gift tax return may be needed.
Importantly, the grantee inherits the donor’s tax basis, meaning they do not receive depreciation benefits if the asset has already been fully depreciated.
By contrast, assets inherited after death often receive a step-up in basis, resetting their taxable value to current market price. This adjustment reduces capital gains taxes if the heir later sells the asset.
For instance, farmland bought decades ago at a low cost would have its value “stepped up” to its modern appraisal, saving heirs from large tax burdens. Similarly, depreciated equipment, barns, or tile systems can be re-depreciated after inheritance, further improving tax outcomes.
It’s crucial to appraise all major assets—land, equipment, and improvements—after death to establish the new tax basis.
Lastly, while the $15 million lifetime estate tax exclusion is considered permanent under current law, legislative changes can occur. Therefore, regular reviews with a farm succession or estate planning team are vital to align strategies with evolving tax rules and family goals.
Photo Credit: gettyimages-steve-baccon
Categories: Ohio, Education, Rural Lifestyle