Editor’s Note:
This article is the fourth in our series relative to federal issues affecting the horse industry. This week’s article deals with the reduction in tax rates and the elimination of the estate tax. Tax issues are a major area of concern for owners as this article clearly points out.
Tax Rates Reduced - Estate Tax Eliminated
Introduction
The horse industry has long supported efforts to reduce personal tax rates and eliminate the estate tax and the American Horse Council has worked with other interests in Washington toward these goals.
Previously, the federal estate tax provided for a top rate of 55 percent. This rate often forced the heirs of a family owned business, like a horse farm, training facility or ranch, to sell land or other business assets in order to raise funds to pay the estate taxes.
Background
Bills were introduced in the last few Congresses to eliminate the so-called “death tax.” Some passed the House or Senate; some passed both houses; but none did both and survived a Presidential veto.
On March 15, 2001, the Senate Finance Committee held hearings to explore the ramifications of the estate tax. Other committees also held hearings. In addition, the Bush Administration pushed for a repeal of this tax in the President’s 2001 tax plan.
Congressional Action
Finally, last summer Congress passed, and the President signed, the Economic Growth and Tax Relief Reconciliation Act of 2001. This bill reduced federal income tax rates and eliminated the estate tax. The top individual tax rate dropped to 38.6% in 2001-2003, to 37.6% in 2004-2005 and to 35% in 2006 and later. There were corresponding reductions in the lower tax rates.
The tax bill also raised the estate tax exemption to $1 million in 2002-2003, $1.5 million in 2004-2005, $2 million in 2006-2008 and $3.5 million in 2009 and thereafter.
The top estate and gift tax rate was also reduced from 55% to 45% over the 10 year period. The rate will drop to 50% in 2002, 49% in 2003, 48% in 2004, 47% in 2005, 46% in 2006, and 45% in 2007-2009.
Unfortunately, all of these reductions will be repealed automatically in 2010, unless Congress makes the changes permanent. Rates in effect prior to the changes will return at that time.
The 2001 tax bill also expanded the availability of qualified conservation easements by eliminating the requirement that the land be located within a certain distance from a metropolitan area, national park, wilderness area, or Urban National Forest. Thus, a qualified conservation easement may be claimed for any land that is located in the United States or its possessions.
The new law also increased the individual alternative minimum tax by $2,000 for single taxpayers and $4,000 for married taxpayers filing joint returns for 2001 through 2004.
AHC Position
Elimination of the estate tax was an important goal for the AHC.
The AHC will support any efforts to make permanent the favorable changes enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001.
Capitol Gains Tax - Holding Period Change for Horse Owners
Introduction