Thanks to recent changes in the commonwealth's tax code, Pennsylvanians engaged in farming and other agricultural pursuits will be finding it easier to keep their assets in the family.
Act 85 extends exclusions from inheritance and realty transfer taxes when moving properties used in agricultural pursuits between family members.
Under the act, agricultural properties which fall under the"family farm" designation can be transferred to or inherited by a wide range of family members without the burden of additional taxation.
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Moving forward
Janet Savko doesn’t wait for the cows to come home, she goes and gets them. Savko is just one of hundreds that can rest easier knowing they can keep their property in their families without worrying about realty transfer or inheritance taxes under a new state law.
A "family farm" business, partnership or corporation is defined as one in which at least 75 percent of assets are designated toward agricultural pursuits and at least 75 percent of total assets are owned by members of the same family.
The law actually consists of three exclusions.
The first two deal with inheritance tax. Under the family farm exclusion, the transfer of real estate "devoted to the business of agriculture" between members of the same family is excluded. Under the agricultural property exclusion, the transfer of an agricultural commodity, conservation easement, reserve, use property or a forest reserve is excluded.
The third exclusion deals with realty transfer taxes. Realty transfer taxes apply to the transfer of real estate between living individuals. Under Act 85, such taxes would not apply to family farms transferring within the same family.
"Farming operations usually have all their assets tied up in the land," Gary Swan, Pennsylvania Farm Bureau director of government affairs and communications, said. "They don't have a lot of cash on hand to pay off inheritance taxes. Families have had to disperse and sell a portion of their land."
"Anymore, family farms may have assets in excess of $1 million and with taxes they (inheritors) could need hundreds of thousands dollars just to take possession," Warren County Commissioners Chairman Stephen Vanco said. "Family farms and small businesses, if the inheritance tax is exorbitant, they can't afford it. They have to liquidate the business to take over. It makes it much easier to pass down from generation to generation."
Janet and George Savko, who operate a family dairy farm on Route 957, agreed the tax exclusions will remove a burden on farming families.
"I've known families that have suffered for this and had to sell off land to pay taxes," Janet Savko said. "You need acreage to farm."
"People work for year and years," George Savko said, "then the government steps in (and takes taxes)."
The exemptions for 'family farms' are broad in their designation of qualified family members. Parents, grandparents, siblings, aunts and uncles, great-aunts and uncles and all offspring and ancestors of those relations, including adopted or half-blood relations, qualify. The agricultural property exclusion applies only to lineal descendants, such as children and grandchildren, and siblings.
The Pennsylvania House of Representatives' Appropriations Committee estimates the inheritance tax exemptions will result in approximately $2.4 million in lower tax revenue for the commonwealth. They estimate the impact of the realty transfer tax exclusion to be minimal.
"It think it will keep a lot of, not just farms, but family businesses open," Vanco said.
"I figure it's about time," Janet Savko said. "Farms that are still going are usually handed down from generation to generation."
"The Pennsylvania Farm Bureau is very supportive of this. This is landmark legislation for Pennsylvania agriculture," Swan said. "It really will be very helpful to preserving farming in the commonwealth. We applaud the governor and our legislature."
George Savko was more direct. "It's about time," he said.