July 17, 2019

Estate Planning for Farm Property

G+G Farmhouse

CAPITAL GAINS ARE HANDLED DIFFERENTLY WITH FARMLAND

When an individual dies any farmland they own is treated differently than land containing that individual’s principle residence. On the death of a taxpayer, farmland can be transferred (sold) on a rollover basis at the adjusted cost base (ACB), or at any price up to fair market value (FMV). A rollover means the transaction of transferring (selling) the farm takes place without any tax being payable immediately. This is beneficial because normally capital gains tax is payable when a business changes hands, and farming operations usually do not have a lot of cash on hand compared to assets like equipment, vehicles, and crops.

Property must qualify as farmland in order to be eligible for the rollover provision. To qualify, property must meet the following definitions:

  • A property must be principally used in farming by one of the following people: the individual, the spouse, child or parent of the individual, or by a family farm partnership or corporation;
  • Using land “principally for farming” requires that the person using the land is actually farming, or has hired someone to farm on their behalf. This does NOT include a situation where land owned by an individual is leased out and the leasee carries out farming on the land with no input by the owner;
  • A property purchased prior to June 18, 1987 must be used principally in farming in the year of sale or have been used principally in farming for any five years during its ownership;
  • A property purchased on or after June 18, 1987 must be owned for 24 months prior to the sale and
    o In at least 2 years, the gross farm revenue of one of the qualified people who is actively engaged in farming the property must exceed income from all other sources or
    o The property was principally used by a family farm partnership or corporation in a two year period, during which time the individual, spouse, child, parent or partnership of which they are a member, was actively involved in the farming business.

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Feel free to contact us at any point for assistance or advice with respect to Estate Law, Estate Planning, Estate Administration or Estate Litigation. We may be reached at 705-435-4339 / 1-877-85LEGAL (1-877-855-3425) or contact us via email.