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Pennsylvania Legislators Give Family-Owned Farms a Break from the Inheritance Tax

1 min readBy: David S. Logan

In a recent vote, the Pennsylvania House of Representatives overwhelmingly passed H.B. 1864, which seeks to modify how agricultural property is taxed by the state’s inheritance taxAn inheritance tax is levied upon an individual’s estate at death or upon the assets transferred from the decedent’s estate to their heirs. Unlike estate taxes, inheritance tax exemptions apply to the size of the gift rather than the size of the estate. when the owner dies.

The difference between an estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. and an inheritance taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. is that an inheritance tax rate depends on the relationship of the heir to the decedent, while estate tax rates do not. Pennsylvania’s inheritance tax rates are the following:

· 0 percent on transfers to a surviving spouse or to a parent from a child aged 21 or younger;

· 4.5 percent on transfers to direct descendants and lineal heirs;

· 12 percent on transfers to siblings; and

· 15 percent on transfers to other heirs, except charitable organizations, exempt institutions and government entities exempt from tax.

If the bill is made law, it would effectively exempt family farms from the inheritance tax. Specifically, it would exempt “transfers of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve.”

Though the absence of an inheritance/estate tax is ideal, this possible policy change would certainly move Pennsylvania in the right direction.

(For further reading concerning Pennsylvania’s inheritance tax debate, see David S. Logan’s testimony before the Pennsylvania House Finance Committee, The Economic Effects of the Estate Tax.)

Follow David S. Logan on Twitter @Loganomix